5 tips for starting or continuing the discussion about money with your kids.
Being able to manage personal finances is one of the best things we can teach our kids. Money and credit impact so many things we do, making it an important topic to discuss with children early and often. If developed correctly, a young-saver's money skills can turn into a strong foundation to stand on later.
But many parents are unsure how to discuss money with their kids. We've put together some helpful tips to use when you're developing your teaching style.
Discover where your child is currently getting information about money management.
Start by taking stock of who your child is learning from right now. If this were the story of Goldilocks, here's how it would look:
Schools: Too Small
Many parents think their kids are learning about personal finances in school. However, most states do not require financial literacy in their curriculum. This may change, but for now, don't expect the classroom to be the major source of your child's financial learning.
Advertisements: Too Big
With so many messages being thrown at them, kids are bound to pick up on how advertisers want people to spend their money and on what. Ads probably aren't the best place to learn about money management, so next let's consider the best option - you!
You: Just Right!
As their parent, you are still the #1 influencer for your children. Your kids are very perceptive and pick up on your attitudes and conversations about money. Whether you're stressed about replacing a washing machine or are happy to see your retirement savings grow, your kids notice. Use this as your opportunity to watch how you're managing your own financial health and responding to expenses. Make sure to do what you say and your kids will follow.
Be Open to Discussion
While you should be walking your talk, don't let that scare you out of talking at all! It's OK if you don't have it all figured out - you have plenty of experience to share with your kids. You can help them follow your good habits and learn from some of your previous mistakes so they don't make them too.
As you run your errands, check your statements each month or make decisions impacting the household's budgets and finances, discuss with your children in an age-appropriate way how you're going about those decisions. And don't forget, talking about why you're deciding not to spend money is just as important as deciding when you will.
Remember, talking about personal finances is a dialogue and new situations offer new learning opportunities. Encourage your kids to ask "why" and to discuss what options are available for solving your family's money needs and goals.
Introduce Save, Spend, Give
A tool that we love for young savers is "Save, Spend, Give". It's simple and makes your kids select a "job" for their money, making them think about its best use.
Here's how it works: have your kids label their funds as money to save, money to spend or money to donate. It doesn't matter how you physically do it, as long as it's separated and identified. You can create labeled jars or you could have 3 savings accounts (sub-accounts work great for this and can be nicknamed).
We recommend using the "Spend" category as money available for everyday purchases. During grocery runs when your child wants a treat, it can come from the spend jar. "Save" is a great category for both short-term savings goals or long-term investing. If your child wants a more expensive toy like a game, they can use the save jar until they have enough to buy it. "Donate" helps kids understand how good it feels to give some of what they have to others.
If you or your child isn't sure how much to put in each category, a common breakdown for adults is 20% to save, 70% to spend, and 10% to donate. That may be a lot in the "spend" category for a child, so feel free to adjust or have them identify what they want to be able to spend money on now and in the near future to choose a breakdown that's appropriate.
Give them a chance to do it themselves
Like all skills, you need to do it yourself to have it really sink in. That means your kids are probably going to make some bad decisions too. That's alright, that's part of learning.
First, make sure they have a way to earn some money of their own. Parents have their own opinions on what household activities can be completed for money or an allowance. If you don't want to give an allowance for chores like making the bed, consider what things your kids could do. Or, help them find jobs around the neighborhood.
As a parent, you can help keep your kids from doing anything really detrimental with their money, but remember to step back and let them go about it their own way. Sometimes it'll work, sometimes it'll turn into a lesson. For example, if you know they're about to buy something that they're going to regret (maybe it's likely to break quickly or give them a toothache), let them do it with their money, within reason.
When you can, be their safety net so they don't do any lasting damage and gently remind them of their past experience if they try to repeat it.
Make it fun
Any time you can make learning about managing money a game, the better. Kids and adults alike are more likely to engage with games and competitions, so make it fun and engaging.
Here are some ideas:
- Do a savings challenge. Choose 1 or 2 weeks when you're going to see how little money you can spend. Get creative! See if you can make things or use what you have instead of buying something new. Walk, bike or take public transportation and track savings based on the IRS mileage rate of 53 cents per mile for driving. Research free days at museums and zoos, visit a summer festival or venture to the lakefront instead of going out for a movie.
- Match their "Give" jar for month. Did your child watch a video of an adorable panda bear cub and now wants to donate to the WWF? Help them make a bigger impact by matching whatever they can put into their "Give" jar for a month.
- Have a goal? Make a thermometer and track progress. There's a reason lots of donation drives use the thermometer - it's a great, visual way to see your progress and keep up your motivation. Have your child choose one of their savings goals and help them raise the bar as they save.
- Take part in Credit Union activities like Youth Savings Month! Every April, Credit Unions celebrate youth with a savings challenge. Stop by a branch to make deposits, get coloring sheets and take advantage of the month's offers.