Whether your child is 7 or 17, now’s a good time to talk to them about money. Studies show that kids form money habits at 7 years of age. Likewise, surveys have found that 53% of kids wish their parents taught them more about money. In other words, discussing and building smart financial habits early is both needed and wanted by kids.
Teaching your kids about finances and savings doesn’t have to be intimidating or taboo. Small changes can have a big impact. These 5 topics are a great place to start.
- Teach the Difference Between a ‘Want’ and a ‘Need’
Once kids can differentiate “wants” from “needs,” they will start becoming a conscious consumer and more aware of their spending decisions. One way to help your child understand a “want” versus a “need” is by initiating a conversation while at the store. Is that toy they’re asking for something they need or something they want? Ask them and see what their response is, then explain why they are correct or incorrect. Define and provide examples of needs, such as clothing and food, and wants, such as toys and candy. You may be surprised by their response!
- The Value of Working for Your Money
A survey by T. Rowe Price found that 48% their parents give their children $10 or more in allowance per week. If you always give your children money without them having to earn it, you run the risk of cultivating a mindset that money isn’t valuable. But by giving your children an allowance by paying them for chores (think taking out the trash, picking up toys or doing the dishes) you’re instilling in them a respect for hard work.
- The Importance of Goal Setting
In a recent survey, 54% of kids say they feel like they don’t need to worry about saving for something like college because it’s so far away. Teaching kids about savings and financial goal setting early on can help change this mindset. By introducing these principles, you can teach them that saving money now can mean greater rewards later. You can start by encouraging your child to save up for a toy they want or a movie they want to see. Give your child a clear jar, so they can watch their savings grow and see the benefits of their hard work and patience. You can also take a digital-first approach by opening a savings account for your child and showing them how their money can be monitored on a mobile phone or tablet.
- What Opportunity Cost Is
Teaching kids about opportunity cost is a great way to instill values of how to prioritize their time and money. You can do this by giving your child the opportunity to decide for themselves. Seek out these opportunities in everyday life. For example: if you go to an ice cream shop, and your child asks for a sundae and a milkshake, explain to them that getting a milkshake means they can’t have a sundae, and vice versa. This will be more effective than telling your child simply “no, just one!”
- The Value of Giving
Teaching your child the value of giving offers a double benefit. Not only does it help them discover causes they care about, but it also shows them how great it can feel to help others. For example, should your child see a news report about a natural disaster, ask them whether they would like to help, then show them how they can send money to a charitable organization to make a difference.
Of course, these tips are just the tip of the iceberg when it comes to talking to your child about money and instilling smart financial habits. Once your child has a firm grasp on the above, you’re both ready to take it a step further. You can use a variety of online resources to teach your child more complex financial topics like investing and credit:
- The World of Money App from our partner World of Money is a great place for kids of all ages to explore financial concepts.
- The interactive app, recently awarded ‘Best Financial Literacy App’ by the Motley Fool, teaches kids everything from world currencies to ‘money drainers.’ Each 3-minute course is followed by a quiz to make sure the child has the concept down pat.
Happy teaching!
