Are the ways we think and feel about money hardwired from birth or do we learn critical life skills from the people around us? The good news is that it’s nurture, and not nature, that wins when it comes to money. This means we have the power to develop healthy, or unhealthy, money habits at any age. The real opportunity lies in developing healthy money habits early on which is why knowing how to teach our kids age-appropriate money concepts is so critical.
As early as preschool, we start to develop our financial belief system and we carry these beliefs with us into adulthood. Here’s what you need to know to prepare your kids for a healthier financial future.
When should you start talking to your kids about money?
The short answer is: start as early as possible. The healthy, and unhealthy, habits we all have around money were formed early on, when we were only a few years old. We can grasp basic money-related concepts like counting or delayed gratification (saving versus spending) by the age of 3. By the age of 7, the subconscious thought patterns of how we make decisions around money have been established. At such a young age, it’s not the math that matters. Rather, it’s the behaviors, the decision making process, and the emotions that we associate with money that form the foundation for our habits.
As adults, while our beliefs, attitudes, and even habits related to money are more firmly ingrained, they are never truly fixed. We can change them at any stage of life. It may just require a little extra TLC to make it possible. The lesson here is that it’s best to help our kids shape healthy habits at an early age so they start off on the right foot. It’s never too early to talk about money or include your kids in regular money conversations.
The buck literally stops, and starts, with you
Kids learn from the way their parents spend money, behave when making decisions around money, and even how they talk about it. The most important thing you can do as a parent is to be a good role model. The mistake you want to avoid is ignoring money conversations in general because the absence of the conversation does not lead to the presence of good attitudes and habits around money. It’s important to be intentional about what you teach, how you teach it, and when you introduce various concepts.
Start with scheduling time as a family once per month to talk about money in the household. And it doesn’t have to feel like an accounting class. Talk about high level topics like how much you earned this month and compare that to your rent or mortgage, the car payment, or maybe the cost of the upcoming vacation. Perfection isn’t the goal. Focus instead on open communication.
Age-appropriate money lessons you can use
When teaching your kids about money, it’s important to tailor the experience to their age. A framework that you can try with your kids uses five simple concepts - earn, spend, save, give, and invest.
For children under 10 years of age - Introduce the concepts of spend and save. At this stage, kids can understand basic money concepts and counting. This is a great opportunity to give your kids a small allowance and to let them make buying decisions at the store (e.g. the toy or the three pieces of candy). Later, let them choose between how much to save for a future purchase and how much to spend today. This empowers them to practice their counting skills and teaches them that money has a limit.
Ages 10-14 (Middle School) - They’ve practiced spend and save, now add earn and give. At this age, you can provide a monetary incentive for chores or work. Cutting grass, shoveling snow, walking the dog, taking out the trash, you name it. This introduces the concept of earning money for a job or chore. It’s important to do more than just pay them. Talk to them about saving their money for a purchase, how spending will reduce what they can save, and how they can give money to important causes. You may even want to include them in a broader family conversation around giving back and volunteering.
Ages 15-18 (High School) - Introduce the concept of investing to round out their financial skills. With real jobs and earned income, they are now eligible to invest some of their money, assuming it makes sense for their level of maturity and you’re able to provide oversight. This will allow you to discuss basic investing concepts to set them on the right path to good investing practices and behaviors at a young age.
Try having them invest in companies they know – Apple, Nike, Lululemon (these are examples and not recommendations). They can learn valuable lessons by following companies they know and watching how stocks and the stock market in general perform. You can also look at investing in an index fund, like the S&P 500, to teach the concept of owning many companies and not just one or two – also called diversifying.
A great way to help your kids get started with investing is to help them establish a Roth IRA. Not only will you teach them the importance of saving for their future (which is a difficult concept for teenagers), but you will give them one of the greatest gifts when it comes to investing – the benefit of time. By starting early, they’ll be able to grow their money for longer and continue to build that nest egg well into adulthood.
The goal of these exercises and lessons isn’t to be perfect. It’s simply to get started. Small lessons, consistently applied, can have a big impact later in life.
3 easy tips to stay on track
Teaching your kids healthy money habits can feel overwhelming at times, but it doesn’t have to be. Here are three ways to make the process easier and a little less stressful.
- Make it easy - If you make your allowance or incentive system complicated, you won’t stick to it. Find a simple solution that works and stick to it. You may make changes over time but at least you will keep doing it.
- Make it part of your everyday life - The simple act of including your kids in regular money decisions is a great solution. You’re making the decisions anyway so it’s a great opportunity to include them in the process. However, you do want to give some context for each scenario – what it is, why it matters, and how you made a smart decision.
- Let them fail - This may sound odd, but we learn a lot from the mistakes we make. Keep the mistakes small and coach them through what they learned and how they can make a more informed decision next time.
No matter your child’s age, you have the opportunity to teach them healthy money habits that they can carry with them the rest of their lives. These tips will help you teach your kids a healthy mindset, set them up for success later in life, and, quite possibly, help generations of your family live fuller and happier lives.
