Teaching Your Children About Money
- Share important money lessons in short conversations.
- Gradually introduce educational resources to help build your child’s money skills and promote good habits.
- Broaden the scope with more challenging money and investing concepts.
From toddlers to teens: forming good money habits
One responsibility that goes hand-in-hand with being an adult is managing personal finances. Unfortunately, many adults learned money lessons the hard way – without any formal education on the subject. Many parents, however, say they don’t want their children to make the same money mistakes they did.
When it comes to teaching your children to save and invest, open and honest talks about money should begin at an early age. What you say – or don’t say – about money matters has a profound effect on how your kids will handle their finances later on. In fact, parents are the single most powerful influence in their children’s long-term financial lives*.
Sharing important money lessons
Parents are the single most powerful influence in their children’s long-term financial lives.
With such influence, it seems logical parents would jump at the opportunity to teach solid life lessons about good money management. However, this isn't always the case. What keeps parents from opening up the lines of financial communication? How can they begin to teach those important lessons, such as how to save and invest?
Jim McKown, Vice President of High Net Worth Planning with Wells Fargo Advisors, says a lot of families are skeptical of sharing how much money they have. They’re afraid their kids might not try as hard. He believes, “They’re afraid of spoiling the kids, or the kids may think they’ll have a free ride."
Many families grew up not talking about money, treating the subject as a very private affair, McKown explains. "I think that is a trait that a lot of our grandparents and parents have passed on. So, it's overcoming that, and learning to be comfortable talking about it. It is uncomfortable for many people to bring up money, because they were never taught how to talk about it themselves."
Overcoming those fears can begin simply and slowly, with a short conversation, McKown notes. "Each brief conversation might lead to more, and if you start with small things, it will eventually become more comfortable. It's not something you do all in one day," he says.
Open and truthful conversations
The kind of openness that McKown suggests is not always easy for parents, especially parents of means. "It is kind of a double-edged sword that people are worried about," he says. "If you show everything, you worry that your children could lose ambition. If you hide everything, there is a danger that they won't know how to handle it. But if children are prepared to handle money, they're more likely not to blow through it and to realize the importance of their decisions."
The truth, however, is parents are teaching their children about money every day. Are they aware of the lessons they're teaching? "Whether the parents realize that they're teaching this information or not, the child is learning everything from the parent," McKown says.
Choosing to teach sound financial lessons, even if it takes you out of your comfort zone, is an investment in your child's future — something every parent can appreciate.
Here are some tips on how to get started:
- Introduce kids to dollars and cents. Teach them the value of each coin and how to make change.
- Explain the concept of earning money. Talk about going to work and what the money you earn pays for.
- Respect money. Show how small amounts of change saved in a jar can add up to a large sum of money.
- Give your children an allowance. Tie their allowance to weekly chores to help instill the concept of earnings.
- Help set savings goals. Help your child figure out how long it will take to save for something he or she wants to buy.
- Match their savings. Give you child incentive and help increase their savings quicker.
Teaching tools that give kids money skills
McKown also believes understanding the value of saving begins simply and grows over time. "I don't think saving really means much until your child sees what saving can do, that you save up for things you want," he says. "So a younger child has a want, and he or she saves for that goal. As children get older, those dollar amounts and the things they want are going to get more expensive. The time between saving and spending will become wider, too."
Making the concepts of money and saving concrete for children is something parents have been doing for generations with piggy banks, jars, or savings account passbooks. Today's tech-savvy kids have a number of online tools to help them grasp these timeless concepts.
Choosing to teach sound financial lessons, even if it takes you out of your comfort zone, is an investment in your child's future.
Websites such as The Mint and The Centsables offer interactive lessons and games for children as young as 5 or 6 years old, as well as tips for their parents. Wells Fargo has its Hands on Banking program for children of all ages.
These resources and countless others can help reinforce the basics of money management in fun and interactive ways. They also give tips on taking your child’s money management skills to the next level, including how to:
- Make spending decisions
- Open a savings account
- Get a credit card
- Invest in the market
- Give to charity
Broadening the scope
Helping your children understand the basics of saving is a great building block for introducing them when they are older to your financial institution and even to investing, says McKown. Many banks and investment firms offer relationship pricing, which enables a young person to build up savings slowly in an account without some of the common minimum balance requirements, because his or her parents have a relationship with the institution.
Even young children can understand basic investing. "If kids can save up enough money to invest in a mutual fund or something they can understand, that’s going to teach them more about financial management and managing a little bit larger amount of money," says McKown.
Talking with children about investing and introducing them to the benefits of working with a Financial Advisor are important steps in helping prepare them for a future inheritance and a stronger financial sense of responsibility.
*Money Management International, "Study reveals who really influences the financial behavior of children".
- Begin talking with your child at an early age about money basics in short, simple conversations.
- Use a variety of resources to help build your child’s money skills and knowledge.
- Help your child establish positive money habits by giving an allowance showing ways he or she can save.
- Be a role model when it comes to handling money matters.
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