Financial literacy is a crucial life skill often overlooked in a child’s education — in spite of the fact that teaching kids about money from a young age can help set them up for a lifetime of financial responsibility and success. As advisors, we’re often asked for guidance from parents on how to approach money conversations with their children.
Here are six key tips for talking to kids about money:
- 1. Start the conversation early
Don’t wait until they’re teenagers to start discussing finances. Begin having age-appropriate conversations about basic money concepts like earning, saving and spending from a young age. Make money a normal, casual topic in the household rather than a taboo subject.
- 2. Give them some financial autonomy
Give kids a taste of financial independence by setting up a chequing account for them when they start earning money of their own, whether from an allowance, gifts or a part-time job. Then help them monitor their account via online banking so they understand money going in and out. When they’re a little older, consider adding a credit card with a low limit to help them learn to manage credit responsibly and build their credit rating.
- 3. Use everyday examples to teach money lessons
Look for teachable moments in day-to-day life to impart financial wisdom. When a child wants to buy something, discuss the cost, how much they need to save and the choice between instant and delayed gratification. Explain your own financial decisions as you make them, like why you’re comparing prices or waiting for a sale.
- 4. Allow them to earn money for wants
If a child has their heart set on a new toy, gadget or experience, consider having them contribute their own money to the purchase. This could mean doing extra chores to earn more allowance or getting a part-time job for teenagers. Allowing kids to work for the things they want teaches them the value of money and the rewards of hard work.
I experienced this firsthand as a horse-loving teenager. Horseback riding is an expensive sport, and while my parents were happy to pay for the basics, if I wanted extras like new equipment, that was on me to fund. So I took initiative and got a part-time job, working long shifts on weekends to earn the money. It taught me responsibility and gave me an appreciation for the true cost of my passion.
- 5. Teach them to tune out social media hype
In the age of social media influencers touting get-rich-quick schemes and overnight successes, it’s important to give kids a reality check. Explain that building wealth is a slow-and-steady process for most people, not a matter of betting it all on a “sure thing” like a hot stock or cryptocurrency. Teach them to be discerning about the financial advice they see online.
- 6. Model good money habits
Remember, kids are always watching and learning from the adults in their lives. To raise financially savvy children, it’s important that parents practice what they preach. Let kids observe budgeting, comparison shopping, saving for goals and healthy money discussions. The example parents set is ultimately one of the most powerful money lessons they can teach.
The bottom line? The earlier you start talking to your kids about money, the better. By making finance a frequent, stress-free conversation and modeling smart money management, parents can help their children build a solid financial foundation to last a lifetime.
Looking for more guidance on raising money-smart kids? Reach out to us anytime.