How to Talk to Your Kids about Money
Financial expert Susan Beacham is the Founder and CEO of Money Savvy Generation, a company that teaches money management basics to elementary school-aged children, to empower kids to take control of their financial lives and, in turn, their futures. She offers parents tips for talking with their children about money:
Why Parents Should Talk to Their Kids about Money:
- If you don't talk to your kids about money, someone else will, and you may not like the message. Money is power, and like sex, it is a very provocative topic for kids to hear you talk about, and one that they actually will listen to.
- Kids today will need to know how to deal with the impact of our new economy. They will need to know how to delay gratification and stretch a dollar — just like the children of the Great Depression — to survive and thrive as adults.
- Kids are hearing about money in school, at home, on TV and in the news that they read. Their friends' parents have lost jobs, lost equity, lost homes and all around them there are examples of less — so now is the time to talk more about getting back to basics.
- Parents who say, 'We need to cut back,' will look much more authentic to kids now as they are hearing about this from their friends and know there is some truth to what their parents are saying.
When Parents Should Start to Teach Kids about Money:
- Parents should teach kids about money at the same age that we teach our children to say please and thank you, how to share and how to brush their teeth. Children as young as age 4 associate the visible accumulation of coins with the abstract concept of saving.
- Open up the financial kimono: Once kids are around 8 or 9, have them at your side when you pay the bills. Take them with you when you "save" and share with them why and how you are saving and what the cost of things like retirement might be. Show them your savings balances; talk 401(k).
- If you have a financial advisor, make an annual event of taking your child with you and have them listen along as you work with your advisor.
- You are the most impactful teacher in a child's life, so model the behavior you want them to see. Your money is easier to spend than theirs. Your kids understand more than you think and are more open to your ideas the younger they are.
- Parents are often afraid to talk to their kids about money because they don't feel too confident about the way they handle money. They don't feel like money experts themselves. They want to protect their kids and their innocence as long as they can. They may also be doing what they were taught by their own parents.
Dos and Don'ts of Teaching Kids about Money:
- When talking to kids about the current financial situation, don't say things are OK when they are not. Take time to explain to your kids what they already know from the tension in the house and from their friends at school.
- Don't lie. It dilutes everything we say as parents. Now is not the time to stress their trust in us.
- Don't predict the future — you are just not that good. Also, telling kids life will be hell for them when they are adults can turn into a self-fulfilling prophecy.
- Don't be silent either. They know from our actions that something is going on and will attempt to read what is going on. Talk to them and set them straight.
- Buying whatever a child wants does not make a child thrive; Giving a child whatever they need does. Teaching them how to help earn money and to help pay for what they need is priceless!
- Get started on an allowance and pay it on time and in cold, hard cash to teach kids to live beneath their means.
- Set up an allowance that covers some expenses you cover for your child today. Let them manage that money and learn what it feels like to only have so much cash, and that when it's gone, it's gone.
- Allowance is the gateway to budgeting. Give them more of your time, talent and attention. In the end, that is what they really want.
Mistakes Parents Make Regarding Kids and Money:
- Thinking they can control the outcomes of their kids' lives by controlling the money flow.
- Not teaching their kids — through allowance, for example — how good it feels to be financially independent from their parents.
- Only teaching their kids how to be spenders. Not taking kids along when they save, donate and invest.
- Hiding money mistakes they make from their kids. Admitting a money mistake allows the parent the opportunity to teach their child how to fix that mistake.
How to Talk about the Economic Situation:
- Talk about money at dinner. Since you are eating in more these days, make sure you are all eating together so you can talk, and you can listen. You need to know what your kids think they know. Ask your kids if they are talking about money at school. Are teachers bringing it up in class? Are classmates talking about problems at home? Use these questions to segue to your discussion about your family and money.
- Explain money shortfalls in concrete terms. Kids don't grasp the abstract very well — so explain what less money in the household is going to mean to them on a daily basis. Does it mean less spent on groceries? Yes. Does it mean they will go to bed hungry? Probably not. Does it mean no vacation this year? Maybe. How about hobbies, sports and holidays? Less money available for these expenses? Maybe. Will you need to move? Kids, especially very young kids, want to know what will happen to their room, their cat or dog, their friends. Explain how their lives may change but that you will always be there — that will not change. Now is the time to reassure and give kids a sense of security.
- Write a letter. If you're not comfortable talking about what is going on with your finances, then start by writing a letter to your kids. Lay it all out and then let it rest a day or two. Go back and edit what feels right and get rid of what does not. This is not a letter you need to send, or that your child will ever read. It is your dress rehearsal for the discussion.
- Get control over spending by making a list. Ask everybody to make a list of what they need and what they want. Brainstorm ways that the whole family can help meet those needs and wants. Commit to every need getting covered first and then the wants. Take a family action plan. If it's a beloved vacation, then brainstorm how everyone can contribute to make that vacation happen. Young children can use their time and talent to start a business: dog walking, snow shoveling, raking leaves. Letting your child help create and contribute to the family action plan will make the vacation a whole new, maybe even more appreciated, time together.
- Start an allowance. Set a realistic allocation for kids that will cover certain expenses, like clothing, sports, lunch at school, gas, car insurance. Allowance is the first step toward budgeting and learning to take personal responsibility for the money in their lives. Allowance lets your child have some control over his/her expenses and that control will go a long way toward reassuring a child that is anxious about money.
Getting Kids Involved with Saving Money:
In these very uncertain economic times, if you feel out of control, imagine how your kids feel. Abundance is possibly all they have known since the day they were born. To help them — and you — survive and thrive in this new economy, here are some money-savvy tips that will save more than a few pennies and teach kids how to live richly while spending less:
- Shop with a list. Whether you are going to the mall or to the grocery store, it's time to go back to shopping with a list. Buy only what is on the list. Have your kids make a list of what they want and what they need. Needs are always at the top of the list and wants don't get purchased until needs are met.
- Carry only cash. The best way to avoid spending more than you have is to use cash. Kids don't understand credit until they learn that when money is gone, it is gone. Set an example by using cash yourself. It is impossible to spend more than you have when you use cash, provided that the cash didn't come from a cash advance against your credit card!
- Clean your closet. Kids need to be reminded of what they already have. They forget, and cleaning a closet reveals long ago treasures that can be used again rather than buying new.
- Trade. Encourage kids to trade jeans and gently used clothing, sports and hobby equipment and other accessories with friends. Rather than a trip to the mall, host a trading party at your house.
- Use the library. Remember that place — the one with all the books, videos and magazines for free? Have the kids pedal their bikes or take public transportation to the local library once a week to get all the entertainment they need for free.
- Don't eat out. Cook as a family. It's fun and much cheaper. Kids learn how to make a meal, and families have time together.
- Turn off the lights. Assign younger children the job of making sure all lights are out in rooms when they are empty.
- Get a job. If the family income falls short, a teen can get what they want and need by earning money. Consider asking them to contribute a portion of those earnings. When kids earn their own money, they look at cash through new eyes.
- Keep track of savings. It's important to show kids what the money-savvy tips do for the family's bottom line. Estimate the savings, and put a portion of the savings against family debt, and another portion into a family account that can be used for treats, like an occasional meal out or trip to the movies.
For more advice from Susan, read her Top Five Money Lessons to Teach Kids.