Talking to children about money and finances is an important part of raising financially literate and responsible adults. However, it can be tricky to know when and how to approach certain topics, especially those around family income, budgeting and saving. This article provides tips on how to tailor financial conversations to your child’s age and developmental stage. With open communication and age-appropriate discussions, you can impart valuable money management skills without causing undue stress or worry.
Starting Early with Pocket Money and Earning Money
From a young age, children can start learning basic concepts of earning and saving money. Around ages 5-7, you can introduce pocket money to teach children about making simple spending decisions. Give them a small amount each week and let them choose how to budget and what to spend it on. This helps them learn about prioritizing wants versus needs. You can also reward them with extra money for completing chores or household tasks. This establishes the link between work and earning money.
As they grow older, explain how you earn an income from your job. Talk about making money through entrepreneurship or profit from investing. Teenagers can take on more significant work like babysitting, tutoring or summer jobs to earn their own disposable income. Support them in opening their first savings account to manage the money they earn.
Discuss Household Budgets and Expenses
Ages 8-12 are good times to go over household and family budgets, expenses and financial trade-offs. Use real examples in your day-to-day life to highlight financial lessons. For instance, if you are grocery shopping on a budget, explain how you compare prices and choose cheaper options for some items so you can stay within your grocery budget.
Go over the basic living expenses needed to run a household, such as mortgage or rent, utilities, food, transportation, healthcare and insurance. Explain how you balance these necessities with discretionary spending like entertainment, eating out or hobbies. Children at this stage can understand the concept of making financial trade-offs. They are old enough to have an allowance and can practice budgeting their own money.
Talking About Family Income and Financial Aid
A common question from children is how much money their parents make. While you may want to protect them from financial worries, avoiding the topic can make it taboo. Demystifying family income helps build openness and trust.
Around ages 10-14, you can start sharing basic details about your income sources and range, such as your salary from your job. Explain any other income streams, be they rental income, profits from a business, or investments. You can also talk about how any foster payments you may receive help provide for the child’s needs and well-being.
As teens transition into young adulthood, they will need to know details of family income to apply for student aid, loans and scholarships for further education. Be transparent about what you earn. Discuss the process of filling out financial aid forms using your tax returns and pay slips.
Understanding Credit, Debt and Financial Risks
In the teen years, introduce the concepts of credit, debt, and avoiding financial risks. Explain credit cards and loans as tools that can be used responsibly or poorly. Discuss good credit management by always paying your bills and credit card balance on time and in full. Go over the pitfalls of high-interest debt and excessive borrowing. Use real-world examples to show how credit card interest and fees can spiral out of control if not repaid promptly.
Share your experiences in using credit wisely by not overspending beyond your means. Warn about scams, identity theft and other financial risks so they develop healthy skepticism. Discuss how you make large purchases after careful research and budgeting, not just on credit. These conversations will help them use credit responsibly when they are older.
Teaching Philanthropy and Generosity
It’s also valuable to teach children about philanthropy, charitable giving and contributing to causes bigger than themselves. From an early age, encourage them to donate a portion of any money they receive to a charity of their choice. Explain the concept of philanthropy and how those who are fortunate can help others in need.
Savings and Investments for Financial Goals
As children grow into teens, the importance of saving and investing for the future becomes more relevant. Use real-life examples to show teens how you save portions of your income and make investments to build wealth over time. Compare saving in regular bank accounts versus investing in stocks and funds.
Help them open their own savings account and encourage consistent contributions from their earnings. Set collective family goals like saving up for a holiday abroad or a big-ticket item. Show them how small, regular investments in a stocks and shares ISA can grow substantial retirement savings. Involve them in discussions about university fees.
Age-tailored money conversations with your children can boost their financial literacy, responsibility and independence. Be open about family finances in an age-appropriate way. Use real-life examples to teach key money concepts – by starting early and regularly talking money, you’ll raise clued-in, financially-savvy children.
