Whether you’re a new parent or helping Junior navigate the teenage years, raising money-savvy kids can be challenging, especially when apps make buying things seem so simple. Experts suggest that the best way to start teaching your kids about money is to start talking about it while they are young.
To help you teach your kids how to be money-savvy, here are some of our tips broken down by ages and stages:
The preschool years
You can start talking about money as soon as your preschooler understands the concept of buying stuff. Believe me, this starts at age three, sometimes even earlier. When your child is three to five years old, expect him to grab at everything and anything that looks enticing in the supermarket, department store or mall. This is a ripe time to begin explaining the age old concept "money doesn’t grow on trees."
You can start with simple talks about wants versus needs, says Winnie Sun, co-founder and managing director of Sun Group Wealth Partners in Irvine, Ca.
One of Sun’s favorite exercises to do with young kids is to teach them that a toy store is like a museum. "We go, we explore, admire, but we don’t take things home. I say, ‘we’re going to just take a look, but not take.’ If you teach them early on, they’ll be used to this and won’t feel like they are missing out when they have to wait or simply need to earn it," says Sun, who is also a financial commentator on CNBC’s Closing Bell and Fox Business News.
Early grade school years
When Junior is five to nine years old, this is the perfect time to begin teaching him about budgeting using spare change around the house. You can reinforce this by instituting a three-jar system. But, no matter how you discuss money and budgeting, kids have to have money in order to learn how to spend and save it, says Arielle O’Shea, an investing specialist.
This is where an allowance comes in handy, says Dan Meader, CEO of Allowance Manager. An allowance, which can continue through the teenage years, can help your child learn to make their own decisions about saving and spending, says Meader.
A good way to determine the appropriate allowance amount is to think about how much money Junior needs to buy what you consider "extras," says O’Shea. This actually works for every age, but in my personal experience, kids ages 8 and up tend to want extra money for clothes, shoes, music and electronics. The idea is to settle on an amount that is less than what your child would need to buy these things in an average week, says O’Shea. This will require him to save up his allowance money, instilling the importance of budgeting.
The tween years, give or take
Between the ages of 9 and 12 is a great time to set up a savings account for Junior – if you haven’t already done so. My boys were nine and 12 when I opened Smart Saver Kids Club accounts for them at Sharon Credit Union. These accounts are still open and my children are now 17 and 20. They use the accounts for summer job earnings as well as any gift money they receive. Statements are sent directly to them, so they have grown up watching the ebb and flow of their accounts. I picked this credit union as it was headquartered right in the center of our town. This made it easy to take my boys to the bank to deposit their checks and withdraw cash. They grew up watching these transactions and understanding how to read their bank statements. (I do have to admit: My older son, now in college, pays less attention to his account than his younger brother who now wants to know how we can invest his money to earn more interest. They were raised the same way so go figure.)
The teenage years
Starting at about age 12 or 13, money matters take a more serious turn. "This is an age when children should be exposed to some sort of real job," says Sun.
Earning their own money becomes important and first job experiences often include babysitting, walking neighborhood dogs, tutoring younger kids or even shadowing you after school at the office. When Junior hits 16, the importance of saving for college can also become an important household money discussion. Another great way to involve your teenager in money matters: Apply for a joint credit card and use this to teach him about responsible spending.
"Let him pay for a meal, sign a credit card receipt and be somewhat financially independent," says Sun.
What if he charges too much on the credit card or blows a month’s worth of earnings on a single frivolous purchase? It will likely happen and this can be a teachable moment too.
"It’s best that they make any money mistakes while they are still with you," says Sun.
The bottom line
For your kids to grow up to be financially-savvy adults, you have to model smart money behavior. Don’t be afraid to talk about you and your spouse’s finances with them, too. As Ron Lieber wrote for the New York Times, "Your children deserve to know what you make, too. Handle it right, and it will be one of the most valuable lessons of their childhood." Always remember: If they grow up in a household where money is talked about, managed wisely and saved, and in a home where you plan for big expenses and weigh financial decisions carefully, your kids will likely carry this with them into adulthood, says O’Shea.