“How much money do you earn?’’
“Why does Sarah get to go to Disneyland?”
“Are we rich or poor?”
Among the awkward questions kids ask – in public or at home – questions about money invariably crop up, right alongside that perennial classic, “Where do babies come from?”
While it may be tempting to avoid the question or distract them with an iPad, having the money talk with your children early is one of the most important things you can do as a parent. After all, children who learn proper money management skills at a young age will likely be better equipped to make smart financial decisions as adults. There is evidence suggesting that children as young as five may have already formed distinct emotional reactions to spending and saving money, and that these behaviours could foreshadow their financial decisions later in life.
Discussing finances with your children early can help them form healthy financial habits. Read on for tips to make the money conversation less awkward and the simple strategies you can use to help your kids make smart money choices for themselves.
1. Start early
You don’t have to wait till your kids are in secondary school to have the money talk. In fact, the sooner you build awareness of basic financial concepts, the better it is for them. As research shows, toddlers start imitating their parents from as young as age one – and behaviours picked up could also include how you manage your money.
It makes sense to talk to children about money as early as possible and teach them important concepts such as the value of money, the importance of saving, and the difference between a need and a want. There are many opportunities in daily life to impart money skills. If your child has spent all their pocket money on an impulse buy, rather than saving up for the item they really wanted, you can use it as an opportunity to demonstrate the finite nature of money. Instead of giving them more money or buying the item for them, explain how long they now need to save to get the big-ticket item they wanted.
2. Have a conversation
As we know from our own rebellious teenage years, conversations with our parents were much more effective than lectures. So the next time your child asks you a question about money, why not try asking them another question in response instead of jumping right in to answer?
Let’s take the earlier question “Are we rich or poor?” as an example. One way to respond could be, “That’s a very good question. Why don’t you share with me what you think it means to be rich?”
Very often, the process involved in finding the answer is far more important than the answer itself. Having this type of dialogue with your children can encourage them to draw their own conclusions about the real meaning of wealth and happiness.
If your children are older, having frank discussions about money could also entail being candid about some of the money mistakes you made in your youth. Being upfront about money issues can help your older children open up to you about their own concerns or struggles, potentially allowing you to intervene before things get out of hand.
3. Let them practice
As the saying goes, practice makes perfect. Put your children up to the task of budgeting and stretching dollars. Let them plan the family’s meals for a week and give them a grocery budget to stick to. Bring them grocery shopping and let them figure out how to take advantage of discounts and deals. For instance, they may realise that buying a store brand instead of a name brand translates to significant cost savings.
As you let them practice making financial decisions, you can also involve your children in setting family goals. Explain to them that goals sometimes require sacrifice. If the family is saving for a new house, that could mean foregoing a few overseas trips. Don’t worry about upsetting their feelings, your children will understand, especially if they know how these sacrifices will affect their future as well.
4. Emphasise money skills
As your children grow older, start teaching them the basics of money management. You can get them a joint credit card (with a low credit limit) and empower them to check the monthly statements themselves and paying them in full. Explain to your children that if they only make the minimum payment each month, they will incur credit card interest; point out the annual credit card fees they may miss.
5. Lead by example
Children learn by watching – and they notice everything, no matter how old they are. When you talk to your children about the importance of saving and they know you’ve already set aside your emergency funds and retirement savings, they are more likely to take your advice to heart.
Likewise, if they see you splurging frequently and not distinguishing between wants and needs, it’s going to be harder to tell them they should do otherwise.
Having the talk
Talking about money with your children is an ongoing process. As they grow up, the importance of managing their finances takes on a different shape as their priorities and responsibilities evolve. Continue to keep the conversation about money going. Helping them understand how to analyse and plan their finances throughout their formative years will equip them with the necessary skills to take charge of their own finances in adulthood.