Helping Your Child Develop a Healthy Relationship With Money

Back in the day, “the Talk” used to refer to a discussion of the birds and the bees between a parent and a child. Parents dreaded the talk almost as much as the child. No more. Although parents and children now speak much more openly about sex and intimacy than ever before, discussions about money, debt, and credit will still make parents uncomfortable and wish they could change the subject.

What are the easiest and most important money lessons to teach children from pre-school through high school?

While attempting to offer healthy and stable financial examples for their children, parents should speak often with children about earning and spending money, credit cards, what debt and interest are, and the difference between needs and wants. Emphasize that money is a tool, not a goal.

The Money Talk

Parents either fear that they are not appropriate role models, or they believe that the money talk can wait until their child is ready to head off to college. The reality is that by the time they can speak, children already know that money can be exchanged at a large building for food, candy, and toys. They understand that a specific card from Mommy’s or Daddy’s wallet needs to be inserted at the check stand before you can walk out with the purchase.

Children learn from observation, even if you are not having explicit talks about saving, budgeting, credit building, debt elimination, and identity protection. Still, parents should talk regularly with their children in order to clarify misconceptions, provide age-appropriate tips and ideas, and give the child an opportunity to ask related questions.

Keep in mind that if your child is not comfortable asking you about how money, credit, savings, banking, and debt work, they will still ask the question of somebody. Do you want to be their source of information or would you prefer their 11-year-old sibling or friend around the corner to explain the advantages and disadvantages of credit cards?

When to Have the Talk

In fact, the Talk works best when it is not a talk at all. Parents who incorporate financial lessons into everyday conversations have the strongest influence on their children when it comes to money.

Of course, above all other financial lessons, you as a parent should strive to model healthy money management behaviors in your own finances. All adults have made financial mistakes along the way, such as overuse of credit cards, the accumulation of excessive consumer debt, or the failure to honor a financial promise.

However, in spite of your failings, your child will notice your effort to keep trying. Be honest and proactive when discussing money with children. If you let them know it is important to you to be financially responsible, it will be important to them as they mature.

The following checklists offer suggestions for how to speak with your child about finances, along with recommended activities at various ages. This is not a comprehensive list, so if you have had positive experiences with money talks, either as a parent or a child, please add your comments below.

Toddler and Pre-School Financial Lessons

• Let your child see you managing your money. Instead of barricading yourself in your bedroom or den to budget or review your checking account balance, let your child observe you working on these important financial tools at the kitchen table or in the living room. If they ask you what you are doing, be as positive as possible in responding along the lines, “I’m managing our money,” or “I’m making sure to pay our rent/mortgage and other payments on time.” If they see money management is important to you on a regular basis, it will likely be more important to them as they grow older.

• Introduce the concept of money early on. It is easy for a young child to think that money “grows on trees.” Use easy-to-understand examples to explain that you value money not for the things you buy but for what you exchange for it (time, effort, and/or ideas) in order to provide the necessities of life. Additionally, you can find some children’s books from a local library that address money and budgeting. Some classics include:

  • Berenstain Bears Trouble with Money, by Jan and Stan Berenstain

  • Alexander, Who Was Rich Last Sunday, by Judith Viorst

  • A Chair for My Mother by Vera Williams

  • The Coin Counting Book by Rozanne Lanczak Williams

• Contact each of the three major consumer reporting agencies (Equifax, Experian, TransUnion) and request they freeze your child’s credit report. This will protect your child’s identity throughout his or her childhood. Unfreezing the report when your child enters adulthood and begins needing credit of his or her own is a straightforward process.

Elementary School Financial Lessons

• Continue the same lessons from earlier ages.

• Discuss the difference between needs and wants. Our basic physical needs are 1) Food & Water, 2) Shelter & Security, and 3) Protective Clothing. Help them understand why a car or a cell phone is an important want, but not a need (how you could still live, albeit inconveniently without one). Demonstrate the difference between needs and wants and encourage your child to save money for things they want to purchase.

• If watching television together and an advertisement comes on, ask your child afterward what the company was trying to get you to buy. Discuss why you would or would not buy the product or service. Consider alternatives to purchasing the product or service.

• Look for ways to provide your child with a small amount of money they can manage on their own, such as a weekly allowance, payment for doing chores, or a mix of the two. The first key to this lesson is to let them make decisions about what to do with their money. Start with a small denomination each week, and look for ways to increase it as your child’s responsibility level grows. The second and most critical key is to be ready and willing to tell your child, “no,” when they come to you for money after they have spent their own stash. Such times offer great opportunities to teach the value of priorities and delayed gratification.

• Take your child to your bank or credit union to help open his or her first savings account. If he or she has saved some money, have them take it physically to the financial institution so they understand what it means to “deposit” money in their account. Explain that even if the building were to burn down or robbers took all the money in the vault, your child’s money is guaranteed by the federal government insurance programs (FDIC and NCUA).

• If you are in a financial position to do so, consider running your own “Family 401k” by matching every dollar your child chooses to place into a savings account with a dollar or two of your own. The sooner they understand the power of savings, matched contributions, and interest, the more committed they will become to long-term financial stability.

• Once your child begins to develop some abstract thinking capabilities (typically between 8 and 10 years of age), include your child to one extent or another in family budgeting decisions. When deciding on family vacations, family entertainment, or even shopping for clothing, explain your options, including affordability and variety, and then ask for their input. Let them know ahead of time that even moms and dads don’t always get to spend their money the way they want to, so your child should expect that you will not always follow his or her suggestions. As you involve your child in real-world situations, he or she will quickly learn significant financial lessons, such as whether it is more important to buy one expensive outfit or several discounted outfits that will last the entire school year.

Middle School Financial Lessons

• Continue the same lessons from earlier ages.

• Have a weekly money reckoning meeting with your child. Meet for one to five minutes at the same time on the same day every week. Ask your child to show you in writing (preferably on a simple register) how much money they earned and received and where they spent every penny and for what.

• Find opportunities for your child to work and earn money, whether in your own home or for neighbors. As he or she earns money mowing lawns, babysitting, picking up dog poop, or walking dogs, you should also help him or her to understand that with your own job, you pay taxes before you ever see your paycheck. Rather than focus on the frustration of paying taxes, help them understand that because of the taxes you and your neighbors pay, your child has a school to go to that employs teachers and administrators and other staff, your city has roads, first responders, and parks. Additionally, we have a military force to protect our country and provide relief after natural disasters around the world.

High School Financial Lessons

• Continue the same lessons from earlier ages.

• Depending upon your child’s discipline in school and availability, high school can be a great time to consider getting a part-time job with a local business. Being a courier, flipping burgers, mixing smoothies, answering phone calls, bussing or waiting tables, stocking shelves, cleaning pools, tutoring younger children, and scooping ice cream all provide your child with a chance to build pride in their work and abilities while connecting the exchange of effort, time and ideas for compensation.

• Once your child has regular income, even if fairly minimal, you should consider helping them to open their first checking account. Speak with your bank or credit union branch manager about recommendations for teen accounts. Help your child apply for a debit card, but not a prepaid card, since you should expect most 15-, 16- and 17-year olds to lose their brand new cards within a week and again within another month or two of being replaced. Debit cards are much less painful to lose than pre-paid cards loaded with hard-earned money.

• Prepare your child for his or her future use of credit. High school is not the time to provide your child with his or her own credit card just for building credit. There is still plenty of time for that. Until your child is a few years from making major purchases requiring good credit to qualify for lower interest rates, he or she does not need to build credit. For now, help your child build healthy credit habits by paying on-time incurred bills (cell phones, music subscriptions, etc.). Explain the damaging effect on their finances of missing or making late payments.

• If you insist on helping your child build credit, consider adding him or her to your credit card account(s) as an authorized user. However, you will probably want to hide or even shred the card when it arrives in the mail. Your child does not need to use the card to benefit from your own good credit behavior.

• Regularly discuss your child’s long-term goals. Encourage him or her to establish meaningful goals, such as saving for college, a car, a school trip, or even buying a home 10 years down the road. Help them put together a strategy for saving enough regularly to achieve the goal.

• Especially for your teen that has a driver’s license, rather than doing his or her clothing shopping yourself, consider giving him or her a monthly “clothing stipend” in addition to any allowance or chores you pay for. Similar to earlier scenarios, you must be ready to tell your child, “no,” at the end of the first month when they come to you and explains how all of the stipends were spent on one pair of brand-name shoes and how there is nothing left for a new pair of needed pants. Your child will learn that money is an “exhaustible” resource and that he or she will need to plan future spending. Remind your child that he or she will also be responsible for doing back-to-school shopping next year and should plan to save a portion of each monthly stipend in order to purchase several new outfits over the summer.

Getting and staying involved in your child’s financial learning from his or her earliest years and into adulthood will ensure that you become your child’s mentor for all things financial, regardless of the mistakes you have made along the way yourself.

Related Questions

How should a child save money?

Young children should have some sort of piggy bank with options for spending, saving, and giving in order to learn the multiple uses for the money. At any age, children should have a savings account. As they begin working around 15 or 16, teens should consider opening a checking account.

At what should you begin teaching children about money?

As young as two years old, children already understand the concept of exchanging money for products or services. By age eight or so, children develop the ability to think more abstractly, being better prepared to understand credit, debt, and even interest.