If you are a parent or raising a child, you know that you have a great responsibility to instill healthy habits and good practices that will give them the foundation to grow into a successful, happy adult. So often, parents avoid having the difficult conversations about money management. Maybe you think they are too young to understand conversations about money, or maybe you really don’t like talking about the subject yourself? Regardless of your hesitation, I’m here to tell you, that it is never too early to start discussing finance with your children, and, as uncomfortable as it may be, it is so important. The United States faces a massive and unnecessary financial literacy problem; according to an article by Kiplinger, only “57% of US adults (are) financially literate” (Hawley, 2019). That means that 43% of adults are not financially literate! Bad financial habits can start at a very young age and continue throughout your whole life. Children are sponges that soak up your financial attitudes and practices, whether you notice or not. The earlier you start teaching positive habits and the value of money with intention, the more likely your child will avoid making costly mistakes in their future. The first step toward a solution to the financial literacy crisis starts with you, the parent or the caretaker. Begin the conversation with your child today, whether they are 5 or 18. It doesn’t have to be stressful or scary for either of you. Giving your child the knowledge and the tools to be financial independent is the best gift you can give them. Money may not buy you happiness, but it empowers you to buy more options and independence. Who wouldn’t want that for their child?
Start the Conversation
First things first, start simple by talking about money as it comes up in your lives. The more you can talk about money with ease, the more your child will be familiar with the concept. If you are going to the store and your child picks up a special snack, do something as uncomplicated as explaining what the cost of the item is, and what that means. Talk about the grocery bill at the end of your trip and highlight how much it costs to feed the family for the week. Money should not be a taboo topic, especially with your own family. At your next family dinner, consider adding money into the conversation.
Give an Allowance
Every family is different and you will need to find what works best for yours, but as a financial professional, an allowance is my favorite way to teach financial responsibility. Giving a child an allowance lets them have some control over their money and how they spend (or save!) it. If you instead give your child money every time they walk out the door, they don’t have to think about where it comes from or how to spend it. In the same way, only giving your child money when they need it and for specific expenditures, like for an approved movie night or shoes for the new school year, also fails to teach them how to manage money. They will not learn healthy habits to use when they can no longer rely on you. I think the best way to teach healthy spending and saving is to give your child a weekly or monthly allowance, and nothing (or very little) beyond that. I recommend you give your child a set amount each week or month and teach them how to allocate it towards savings and spending. If they want to go to the movies with friends, they should take this from their allowance, not your wallet. This gives them the power and the choice of how they want to spend their money. This will take practice on both parts, but the lesson will help them for years to come.
Open a Savings Account
I recommend opening a savings account in your child’s name as soon as possible to teach them the importance of saving. Encourage them to save part of their allowance or babysitting money each month, and teach them how fun it is to watch their savings grow. Talk to your child about their savings goals and how valuable a healthy savings account can be for the future. With your guidance, talk to them about the pros and cons of using their savings account to fund big purchases. Children can understand from a surprisingly young age that they would rather save their dollar for a bike later than a toy now when they are empowered to do so.
Encourage a Strong Work Ethic
Teaching your child to develop a strong work ethic will help your child throughout their entire life. I know some families don’t want their teens focused on work instead of school, but your child doesn’t have to have an official job to learn a strong work ethic early on. Set high expectations for school work and extracurriculars, and also encourage your kids to find work like mowing the neighbor’s lawn or babysitting. Part of getting that allowance should be “working” around the house and completing chores. Teach your child that money is earned—it doesn’t magically appear. When the time comes for them to get an official job, talk to them about the importance of working hard, showing up on time, and saving part of their paycheck.
Share Your Mistakes
If you’ve made financial mistakes throughout your life, talk to your child about them and the impact on you. Are there mistakes you’ve made that you don’t want your child to repeat? I’m sure there are! It is more effective to be transparent with them and talk about how your financial mistakes have had consequences. Not only does this teach them what not to do, it also teaches them not to be ashamed of their future mistakes so they feel comfortable asking for help before it is too late. Show your child that no one is perfect and we’ve all made financial mistakes here and there. We just hope that they are minor mistakes that won’t affect their future too greatly.
Lead by Example
The best thing you can do to guide your child to financial independence is by showing them the way. It is okay if you aren’t perfect, no one is. But the more you have your finances in order, the more likely you are to raise a financially savvy child. If you are teaching your child to save and spend within their means, you should be doing this too. We are here to help if you need to improve the control you have over your finances, so you can be proud of the example you are setting for your child.
So much of what a child learns starts in the home. It’s time to start talking about the value of money in your home. Be your child’s guide and cheerleader as they navigate the lifelong process of making, saving and spending money. At Amy Noel, Inc., we want to make sure your entire family is taken care of and on the right track. No matter what age your kids are, we want to be part of their journey to be financially smart and independent. Give us a call today and find out how we can help educate and support you and your family.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Hawley, C. (2019, October 28). Most Americans Think They Know More about Money Than They Do [Web log post].