Talking to Children about Money

Tuesday, April 23 at 09:20 AM
Category: Personal Finance

Today is Teach Children to Save Day! In many families, talking about money can be uncomfortable, and in some cases, almost taboo. When children request something that costs more than the family is comfortable spending, children of different ages react differently. Young children may not have an understanding of the item's cost relative to the family's finances. And a teenager's "need" may be viewed as an "extravagance" by the parents. These simple ideas can help foster two-way conversations between parents and children, as well as a basic understanding about the value of money.

Young children
It is never too early to help your child develop a healthy respect for money and to develop some good financial habits. The practice of using an allowance can be worthwhile if it does the right things. If your objective is to teach the basics, then consider the following:

  • Set a weekly allowance to match the age of the child; perhaps a five year old receives $5.00 weekly.
  • Tie the allowance to some required chores like setting the table for dinner. If the chores aren't done, then withhold allowance for the week.
  • Divide the allowance into three spending categories — one-third for immediate spending, one-third saved for some specific near-term purchase (like a small new toy) and one-third for a longer-term goal (like a major new toy).

This is often the most difficult time for children to deal with financial issues. Peer pressure, a desire to keep up with what their friends have and the growing realization they can't have everything they want can add tension to any conversation about finances. However, it is also the time when children can begin to understand more complex financial issues and develop good financial habits.

The allowance approach gets more complicated in the teenage years as the costs of desirable items increases, and teens are drawn to more activities that cost money. This may be a good opportunity to discuss how a job could help them afford the things they want. After-school and summer jobs are an ideal way for teenagers to learn money is earned and not something that mom or dad will always provide. A job will also teach young adults about responsibility, since the employer will rely on them to be present and punctual. If an outside job is not possible, then consider paying your teenager an hourly rate for additional chores, and insist they treat the chores as a job.

Helping teenagers establish a checking account, or even preparing their own tax returns, will go a long way to helping them understand money is a serious matter, and someday they will need to be self-sufficient and make their own financial decisions. If they get a checking account, then be sure you teach them how it works and how to reconcile the account every month.

Keep the conversation going

Be open to discussing finances with your children. Kids are naturally curious about what they see their parents doing and that curiosity can be easily turned into teaching opportunities. When your child sees you writing checks that is an ideal time to start talking about the importance of paying bills and balancing a budget. A question about TV news reports on stock market activities can lead to a more serious discussion about money and long-term financial goals. A conversation about choosing a college can be an eye-opening experience when your child learns what it costs.

Take advantage of these opportunities and by the time your child is ready to leave home, they will have a foundation to better prepare themselves for their financial future.

The views of this article are for general information use only. Please contact and speak with a subject expert or your banker when specific advice is needed.

Tags: Budgeting, Cash Management, Financial Education, Savings
William Dad of 2 on 5/22/2013 at 3:54 PM
Personally I amnot a fan of allowance unless it is tied to chores and that if not completed - not paid. The idea of teaching children about money and how to manage it is important and should reflect the real world. My two kids are a handful but I have incorporated games, books, chores and more into teaching them about how money works and how it should be managed. I even wrote a book just for them to teach them about the different opportunities that they have today that my generation did not.

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