A Parent’s Guide to Teaching Kids About Money
As a parent, it's important to have productive conversations about money with your children at an early age. According to research from the National Endowment for Financial Education, students whose home states required financial education courses were found to be more likely to save, less likely to make late credit card payments, and more likely to take on a healthy amount of financial risk. In other words, financially educated children tend to make smarter choices with their money throughout life. In this article, we’re sharing our best tips for teaching your kids about money.
Tip #1: Start with Values
It’s natural to want what others have--especially friends who always have the latest and greatest toys and gadgets. However, “keeping up with the Joneses” can be a slippery slope. If your kids see you spending frivolously to keep them happy, they may adopt similar habits as adults.
Instead, encourage your kids to pursue their own hobbies and interests by spending money on items that advance their goals. For example, if your child shows an interest in art, consider buying them an art set.
Focusing on their values and goals rather than material possessions can help your kids become better decision-makers. In fact, studies show that child goal-setting can help build resilience, confidence and motivation. Put differently, teaching kids about money starts with helping them develop a strong sense of self.
Tip #2: Encourage a Positive Money Mindset
Most of us were probably handed the line, “money doesn’t grow on trees,” at some point as children. However, most kids don’t truly understand what this means. In addition, phrases like this one can actually instill limiting beliefs about money in your children, which can impact their future success.
When it comes to spending, it’s important to distinguish between “can’t” and “won’t.” Saying you won’t spend money is far more empowering than saying you can’t. Rather than teaching your kids that money is scarce, you can focus on the importance of prioritizing spending.
This is just one example of how limiting beliefs are formed. The point is words matter when it comes to teaching kids about money. Be careful to choose yours wisely, so your kids develop a strong money mindset.
Tip #3: Give Them Hands-On Experience
To help your kids build financial confidence, it’s important to give them hands-on experience. In other words, they need to have some skin in the game to truly understand how money works.
An easy way to start is by giving them a weekly allowance to manage. At the same time, teach them the tradeoffs between spending, saving, and even investing if they’re old enough to understand. Talk to them about their goals, and set monthly check-ins to assess their progress.
Just remember, it’s more important to keep the lines of communication open and provide helpful feedback than to “grade” them on their choices. Teaching kids about money requires a healthy amount of patience, but the payoff is worth it.
Tip #4: Be Open About Debt
Debt can be a complicated topic to discuss with kids. However, it’s important for them to at least learn the basics. A solid understanding of debt can help them avoid many of the mistakes teenagers make as soon as they leave home, like opening a high-interest credit card account and carrying a balance.
More importantly, be sure to teach your kids about the relationship between debt and credit. Showing them how to build their credit can save them a significant amount of money as adults and open up far more opportunities.
Tip #5: Lead by Example
Lastly, make sure you practice what you preach. Regardless of what you teach your kids, they’ll notice how you behave when it comes to money. While none of us is perfect, we can all do our best to make smart financial choices for the good of our families.
Teaching kids about money is beneficial for all involved. If we can help prepare you to have these conversations with your children, we encourage you to get in touch. We’d be more than happy to help.
