How do you talk to your kids about money?
More importantly, how do you react when they ask about it? Do you embrace it or avoid it? Much of your reaction depends on how you interacted with your parents about money. For many of us, that involved silence!
Kid-friendly money concepts and questions vary by age. But, with the holidays fast approaching, now is a great time to instill money concepts. Here are some of our favorite ideas, many of which are from Ron Lieber’s book The Opposite of Spoiled.
Kid-Friendly Money Concepts
As a parent, what do we want to accomplish?
- Set reasonable spending guidelines,
- Model a few sensible tactics,
- Adopt family rituals, and
- Make spending fun, with an emphasis on items with value and meaning!
Remember, every conversation about money is also about values.
- Allowance = Patience
- Giving = Generosity
- Work = Perseverance
Kids want to know what their parents stand for.
- Our spending choices are one way we articulate this.
Kids are curious about everything, including money!
- Praise them for asking good questions, so they come to YOU.
- When they ask about it, be honest with them.
- If they ask you how much money you earn, don’t respond by saying “enough.” Instead, ask them why they want to know and open an honest dialogue.
Kid-Friendly Money Ideas
Generosity (Toddlers +)
- Toddlers mimic our behavior, so use this as a chance to teach them about generosity.
- For example, Grandma Patty takes our kids individually to the local drugstore to go Christmas shopping for the family. While at age 3, not buying something for themselves was a hard lesson, at age 7, they look forward to it!
Rituals (3 to 6 years)
- Keep the magic alive and reasonable!
- For example, instead of leaving $5 for a lost tooth, consider leaving $2 (and floss!) and sprinkling “fairy dust” from the window to the bed. Which approach will leave a lasting impression?
Introducing An Allowance (5 to 7 years)
- A reasonable weekly allowance may approximate half your child’s age (age 6 = $3).
- Skip a piggy bank and create three jars for spending, giving & saving
- Establish a weekly routine to distribute their allowance. Make sure it’s broken up into bills or coins to allocate to each of their three jars.
An Allowance, Now With Interest! (8 years +)
- Teach your kids about the power of compound interest.
- For example, assign an interest rate and pay them monthly interest on the balance in their “save jar.”
- Start with a high-interest rate (i.e., 20% annually) while the balances are small to make the illustration more valuable.
Prepaid Debit Cards (10 years +)
- Encourage thrift, reduce nagging, and provide autonomy by giving your kids a prepaid debit card for back-to-school clothes or spending money on vacation.
The “Lands’ End” Rule (12 years +)
- Teach your kids about budgeting.
- For example, offer to cover the cost of an item equatable to what it would cost at Lands’ End (or an equivalent retailer). Anything in excess is their responsibility.
- Expand this concept to sports equipment, technology, cars, etc.
Encourage Curiosity (3 to 22 years)
- After asking, “How was your day?” follow up with, “Did you ask any good questions today?”
- Be prepared to share some questions you asked too!
Teaching your kids about money is an evolving process. Now is the time to instill this concept! If you’re interested in setting up a Roth IRA for your children, contact us to learn more about the requirements.
All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services.