Have you talked to your children about … money?
Ideally, it’s not just one conversation, but an ongoing dialogue that begins as soon as your children are able to ask questions and continues after they’ve become adults living on their own.
Maybe you can’t teach a preschooler the complexities of using credit wisely or how to make good investment choices in a 401(k), but you can teach them the important role that money plays in our lives.
You can build on that foundation at every age level, using age-appropriate illustrations, examples and real-life strategies. Here are some ways to have “the money conversation” with your children at various life stages:
Preschool Years: Starting Simple
You can start talking to kids as early as age 2 or 3 about money, using simple concepts like the fact that everything costs money — the food they eat, their clothing and the house they live in.
But go beyond these necessities, explaining that new toys and video games are things your family could do without if necessary. Offer them new toys a few at a time rather than showering them with abundance.
Elementary School Years: Building the Foundation
Give allowances as soon as the kids are old enough to understand the concept. Require them to spend a little (to learn the joy of having money), save a little (to learn the concept of delayed gratification and the importance of saving for a long-term goal, like a bicycle or Xbox), give a little (to learn the obligation of helping others who are less fortunate) and pay tax a little (to learn the reality that you don’t get to keep or spend everything you earn).
You accomplish that last item by withholding 10% or 20% of their allowance; invest it without their knowledge and give them the account when they’re ready to buy a car or go to college.
If the account did well over that time, you’ll be a hero while simultaneously teaching them the power and benefits of long-term saving.
At age 6 or 7, teach children about prioritizing their money. For instance, at a toy store, instead of letting them pick anything they want off the shelf, try giving them $5 or $10 and letting them select something that fits within that price range.
If you buy them anything they want, they’ll expect this treatment throughout life, developing a sense of entitlement. You sure don’t want to see that trait in them when they are teenagers or graduates.
From now until about age 12 or 13, make it clear that your family’s money is the result of your hard work. When they’re old enough and able, have them do chores so they can earn an income. Then give them the power to choose how they will spend that money, and help them choose to save some of it.
Smartphones start to become popular with this age group. They cost hundreds of dollars, plus monthly bills, replacement costs and insurance. Make sure your kids understand the risk and obligation of having a smartphone, or you might suffer the fate of parents who have been surprised to receive huge phone and texting bills. (The same is true of cars — fuel, insurance and repairs are costs that go well beyond the monthly payment.)
High School Years: Increased Responsibility
This is a critical time to establish a financial collaboration with your children. Encourage them — and help them — to get a part-time job to help pay for car insurance (their share of your higher premium, or insurance on their own car once they can afford to help pay for one), their gasoline or a portion of a family car payment.
Hold them accountable for sharing some of the costs they incur at school and elsewhere. Once they receive a paycheck, set guidelines on how much should be earmarked for car expenses, college or other big-ticket items.
This age is also the time to highlight the importance of a quality life, rather than the quality of one’s possessions. For example, a brand-new car at age 16 may bring an immediate thrill, but the financial pressure it brings can lead to regret.
College Years: Real World Experience
Your child is now ready for an adult conversation about his or her finances. Make sure he or she knows how credit works and how to use credit cards wisely before those cards put the child in serious debt. Show your child how to decide whether it’s better to buy or to lease a car.
Use your own experiences — good and bad. Explain how credit cards can bring a false sense of financial reality, making one less conscious of where money is flowing and how much is being spent. Talk about how struggling with deep debt can take an emotional and even a physical toll.
The late teens and college years are also a good time to make your children aware of your financial, tax and legal advisors — in case something should happen to you.
Adulthood: The Journey Continues
Even after college, when your kids are true adults, “the talk” continues. Make sure they know the contents of your estate, details of your will or trusts, bequests and money they are in line to inherit, and where you store vital information, including passwords to data you keep online.
Tell them whether you want to stay in your home or how you feel about various forms of assisted living. Discuss any power-of-attorney needs. And always encourage a spirit of cooperation among adult siblings.
Have you initiated “the talk” — the one about money — with your children? Do you keep it going? If you do, your whole family will be richer for it in more ways than one.