If you think back to your childhood, can you remember the lessons, feelings, and beliefs you learned about money and finances? What is your first memory of money? Is it positive or negative? Did your parents struggle with money and did you know that? Was the topic of finance not discussed at all? Did you learn to save money?
You already know your kids are little sponges that pick up everything you say (and don’t say!), so it’s incredibly important to be mindful of the lessons and conversations you are having around money very early on in your child’s development. Why is it so important? Many studies have shown that the mindset, habits, and beliefs around money can be ingrained in your child as early as 7 years old! It’s never too early to start teaching your kids some key financial principles that they can apply to their lives.
You already know that our country does an abysmal job of financial education and literacy in the public education system, so congrats, this is your responsibility as a parent and could be some of the most impactful lessons they take with them throughout their lives.
First, let’s chat about setting boundaries about what and how you share with your children about money. It’s great to start these conversations at a young age, but there is a difference between teaching about money and financial enmeshment. Financial enmeshment is when you involve your children in financial situations that are beyond their emotional and logical understanding. Examples of this can be:
- Arguing about finances with your partner when your kids are present
- Having your child act as a mediator between spouses (for example: encouraging your child to ask your spouse for money or to make a purchase)
- Vent to your children about financial stressors
- Rewarding children with money for fulfilling emotional needs (buying them gifts for spending time with them)
- Using money as a reward or punishment for non-work-related behaviors
- Rewarding one child over others unfairly for non-work-related behaviors
- Borrowing money from children to handle expenses
- Sharing information about financial situations that the child does not have the emotional or intellectual capability of helping with (job loss, late bills, bankruptcy, the stress of child support/alimony payments, etc)
Once you set these boundaries, you can teach your kids some amazing and valuable things about money. As your kids get older, you will add more concepts to help create financial independence. Here are some helpful ways you can get started grouped by age.
Preschool and Kindergarten:
- Check out the book The Opposite of Spoiled which has many words of wisdom on how to handle the basics like the tooth fairy, allowance, chores, charity, savings, & more.
- Help them set up a system for three different savings goals (so three different piggy banks or three jars). One will be for spending (50% of the money they receive), one will be for spending (40% of the money they receive), and one will be for giving back (10% of the money they receive). Teach them about the different savings goals, how to use them, and celebrate with them as each goal grows. Having a clear piggy bank/jar will also help them visualize their savings better. Let them choose where they would like their giving back funds to be spent (every Christmas my Mom would go through a list of non-profit organizations with me and I got to choose where my dollars went that I had saved all years, I still remember how amazing it felt to buy gifts for others at a young age!).
- When they want to buy something with their money, help them count what is in their piggy bank and let them hand the money to the cashier. This is better than just saying “the toy cost $10”.
Elementary and Middle School:
- Assign individual chores a dollar amount to earn, rather than just paying a regular allowance. Helping them learn that more chores or the bigger chores they do will get them more money to save and spend.
- Demonstrate opportunity cost, both for their purchases and your own. Opportunity cost is understanding that by buying that shirt, you won’t have enough to also go out with friends to the movies. Discuss this even with family purchases. For example, if the family goes on vacation this year, that means we won’t spend as much money going to nicer restaurants. This helps you kids start to understand how to align their spending with what they value most.
- Help your kids avoid impulse purchases with money. When they find something they absolutely love and have to have, encourage them to wait a day or two before purchasing to make sure they have properly evaluated the opportunity cost of the purchase.
- As your kids get used to spending, be sure to teach them to understand the difference between name-brand and no-name brand choices, deceptive advertising, and comparison shopping.
- Allow them to make mistakes without shaming them. They may spend their “spend” money one week and realize the next week they really wanted to use the funds for something else. Talk this through with them with zero judgment and discuss what they think they could do next time to set themselves up for success.
- Explain the value of good grades. Good grades mean scholarships in the thousands of dollars or tens of thousands. Their ACT/SAT score can also be worth thousands in scholarship money. I had zero clue that my freshman grades would have an impact four years later when I was applying for colleges (I *may* have skipped a bit of classes my freshman year…teach them to not be like me)
- Help them open their first savings and checking accounts. Teach them how to set up automatic transfers to their savings account and celebrate their savings with them! My parents would match my savings if I saved a certain amount from my part-time jobs which created an incentive for me to save more and spend less.
- Create a simple budget together for the school year with all of their known expenses (school clothes, supplies, lunches, & so on). My Mom would have me figure out all of my expenses for the year and give me a monthly allowance and I would have to learn how to pay for everything throughout the month. Sometimes at the end of the month, I was out of lunch money because I spent it on something earlier in the month and then I would have to work for extra funds.
- Teach them about what a credit score is, why it’s important to have a high score, and what they can do to protect their credit score. Do you have any lessons to share with them about credit cards or debt? Now is the time to be honest as your mistakes could be their best lessons. If you have good credit and consistently pay your bills on time, you could add your kids as authorized users on a credit card to help them start building good credit so they can qualify for their own card in the future.
- If your child is heading off to college, discuss how you’re paying for college. With the insane cost of college these days, help them learn about their options, research scholarships and loans, and make sure you also understand how all of these costs will be covered.
- Read our earlier blog post on What to teach your kid about money and finances as they head off into adulthood
For more exercises that you can do with your kids when it comes to money, visit the Consumer Financial Protection Bureau Money as You Grow guide for parents. There are age-appropriate activities, lessons, books, and stories to help you teach your kids.
You don’t have to have all of your finances in order to help set your kids up for success, but you do have to start talking with them as early as possible. Help them take charge of their financial future and be excited about money and finances so they can be future money rockstars (and maybe a future financial planner!)🤓!