Your kids are most likely to learn about basic money concepts and some money management details at school. However, schooling will most likely never replace real-time learning at a dining table, grocery store, or ride back home.
Take a look at three reasons why you should start talking to your kids about money.
Mistakes have less risk and consequences
Growing up is possibly the only time when anyone can make money-related mistakes without serious financial consequences. So if you don’t take this time to educate your children about money, you’re depriving them of precious opportunities to explore, to make mistakes and learn from them. As with learning how to stand up, use the potty, ride a bike, or any new skills, let them make mistakes as early as possible.
Easier to combat misinformation
We are living in the days where everyone wants to be a guru or an expert in areas in which they have no foundational skill level. Also, due to technology, the global conditioning for instant gratification is a societal norm. People use google and follow social media influencers to get a quickie cliff notes version of information. Even though it may be a good place to start with general information such as concepts and definitions, it will most likely will not give specifics as nothing in the financial, business, or legal realm is 1 SIZE FITS ALL.
Also, even though there are professionals who use social media platforms to give foundational information to promote their business, there is still the factor of authenticating their background and questioning their motive of wanting to produce quality services, or just tell people what they would like to hear to produce volume for their business. The best way to combat this is to
take trips to your credit union when you open their accounts between 13-16,
libraries that give kid friendly free programs,
Take them to a tax professional when they file their taxes for the first time as a teen. DO NOT DO IT FOR THEM!
or with any professional as they progress and transition at each stage of their lives up to the age or stage they have reach independence.
This will allow them to have their questions answered straight from the source. This could also be a learning venture for you, as the parent, as well as you will be learning what was never taught to you.
Breaking Cycles
Education is the best way to break poverty cycles by to help identify the family history of making poor financial decisions or exercising poor financial habits no one was aware of. Financial policies, the economy, financial products or vehicles , and tax code are ever changing. What worked for your grandparents and great-grandparents back in the day, will not work in present day. YOU DON'T KNOW WHAT YOU DON'T KNOW unless you stay in the loop and take an active role with managing your finances.
For The future
There will be a point when your children should have to be independent from you. Even the IRS says you have to stop claiming your children as dependents at 22 as they are graduating college. After that, they are no longer considered a qualified child but a qualified relative that can only be claimed as your dependent if they make low income (Adult dependents can't have a gross income of more than $4,700 in 2023 or more than $5,050 for 2024) and unmarried.
You don’t want to continue to cover their finances when it’s time for you to retire. You can be supportive, but you can’t support them financially forever. So, if you don’t talk to your kids about money, you’re risking your own financial wellness, as well as theirs. Moreover, you would want your children to be able to put their best foot forward
Here are some ways to teach kids about money management:
Teach financial terms
Explain financial terms in ways that are relatable to your child's age and experience. For example, young kids can focus on saving and spending, while preteens can learn about stocks, and teens can learn about credit cards, loans, and debt.
Create Small Wins
Create small wins by giving them chances to earn money such as behaving in school, doing homework on time, etc.. Giving an allowance for doing chores at home is not suggested simply because homemaking and housekeeping is a apart of adulting and no one will pay you to keep your own house clean as an adult. In fact, some landlords will either fine you or evict you for poor upkeep.
Set a reasonable amount and frequency, and discuss expectations with your child. Encourage them to divide their allowance into categories like saving, spending, and giving. Those small wins give them confidence that they can do bigger and better things.
Teach Entrepreneurship Children teen to be very creative. Think about encourage using their talents to provide a product or service. Things like selling left over Halloween candy, helping classmates with their homework (tutoring), selling old toys, artwork, lemonade stand, car wash, lawn work, etc.. will help them learn how much it takes to make a dollar. It will also encourage them to take proper care of the items they purchased with hard earned money as opposed to money that was given, they may be less likely to spend frivolously, and it will give them a sense of pride to be able use their skills to reach goals.
Parents who are self- employed or own a business may start to incorporate their
children into learning the family business as young as 6 or 7 years old. This way
they have a plan B in case their endeavors don't work as an adult, the parents have
groomed someone to take over when they retire, and their children will get
first-hand exposure as to how a business is ran. There is also the tax benefit for
those parents who have homebased businesses and employ their children.
Teach them to budget
Budgeting is a key to financial stability, and teaching kids to budget from an early age can help them develop good financial habits. Children who never learn how to put needs before wants, sacrifice and save up for big purchases as opposed to instant gratification, or how to adjust their budget when their are changes in their income become adults who do not know how to do the same.
Explain investments
Discuss the potential risks of investing and the importance of making informed decisions. Investing without foundational knowledge and research is plain ole gambling.
Talk about money
Make it clear that it's okay to ask questions about money and that it's not a taboo subject.
Teach them to save
Saving money at an early age can help kids develop a habit of saving for bigger things later in life. There many ways and financial vehicles that help you save with a benefit. Starting with a piggy bank, then upgrading to a real bank account for minors around age 13, then graduating them to exploring options of IRA's, money market accounts, government bonds, ect... once they start working on their first job is a plus.
Things not do to avoid financially sabotaging your children:
Open up bills or credit cards in their name, especially if you are a poor pay master. You expose their sensitive information to databases too soon, expose them to fraud or identity theft, or can potentially start them out with poor credit causing them financial hardships before they even get started in life. Creditors normally look at the last 2 years of your credit history for big purchases. Most big purchases require you to be the age of 18 or older. So, their is no need to start building your child's credit before the age of 16.
Pass out your children during tax time. This was a common thing to do in the past by parents who were either under employed or unemployed in an attempt to get compensated for not being able to file for a large tax refund. Not only is this illegal, but you put your children at risk for identity theft.
Open up LLC's in your child's name without first consulting with a business lawyer or a tax professional who has a background in business, finance, or accounting. You can put your child in tax liability (children are not exempt from paying taxes or having tax debt).
Don't Pay for Everything. Make a conscious decision to have your kids to start to paying for some of their own things at a certain age. Obviously, you buy food and clothes and pay for a roof over their heads. But as they head into their tween years, more things start to move onto their financial plate.
Here's why: When kids buy things, they tend to take better of care of them. They feel proud about earning, saving and spending their own money for the items they choose.
They learn super valuable lessons about value and quality.
Don't force your opinions about finance strategies or investment vehicles. Most Adults do not understand finical strategy themselves and may not be aware of the things they do not know. Allow your child to discuss methods they would like to try ad maybe even allow them to try it. Some children need real life application for a lesson to hit home, and as previously stated, the loss
Financial tools and Resources for Learning
Modern Money: Safe Digital Banking (high School)
FutureSmart: Financial Literacy (middle school)
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