Having The 'Money Talk' with Your Kids
How to Get an Early Start on Financial Education
Laurie Incontrera is proud of her oldest son Andrew's money management skills. "He pays for half of his college by working between 25 and 35 hours per week and has paid for several trips he has taken to New York and to Canada."
Scheduling automatic transfers from his checking to savings account has been key, says Incontrera, a habit she and her husband have reinforced since their boys entered junior high school.
She could have started those money ed 101 lessons even sooner, says Erica Sandberg, author of "Expecting Money: The Essential Financial Plan for New and Growing Families." “Integrate the subject of money when you begin to teach numbers. You can have your kids stack and count coins, or look for what things cost on price tags."
According to a 2012 survey from T. Rowe Price, some parents are actually more comfortable talking about bullying, drugs and smoking than family finances. Here's how you can push through the fear factor of finances and ensure your kids learn to practice safe spending and saving from you.
Having the 'Money Talk'
“I started talking to my son Adam about money when he was 3 or 4 in response to his requests for new toys or treats at the grocery store," says Tamar Satov, who blogs about making kids aware of finances for the Chartered Professional Accountants of Canada (CPA) and serves as senior editor of CPA Magazine. "It costs money – money that his Dad and I work hard for – and he needed to learn that we can't always have what we want when we want it."
As your kids get older, put the concept in terms they can understand, suggests Sandberg. "Tell your daughter, 'If you get paid $10 an hour, it would take at least 10 hours to earn enough for one expensive doll.'"
Sandberg says that by the time kids are in middle school, they should have an idea of what it takes to run a household and the costs of things like rent or mortgage payments, gasoline and leisure activities.
Make Earning and Learning a Priority
When it comes to raising her four children to be smart stewards of money, Stephanie Coonce combines earning with learning.
"I gave each of my kids a check register. They earn money for chores (or from birthdays, etc.), which we add to their registers instead of me having to have cash all the time." When they make purchases, the homeschooling mom from Katy, Texas, pays for it and her kids deduct it from their check registers. "They get math practice and learn how to balance a checkbook at the same time."
It's important to give your children opportunities to earn money, and sit them down and teach them to budget, Incontrera says. She showed her boys how to save – "some for now, some for short-term goals, some for long-term goals and definitely some for charitable giving."
Let Them Learn from Mistakes
"When one of my sons insists on spending his last $2 on a toy car even though he already has a ton, sometimes the lesson is only learned when he watches his sibling buy the coolest new toy with his saved money and not get one for himself," says Coonce.
Although it's tough to watch your kids make money mistakes, it's ultimately going to be the best thing for them. "Letting kids make mistakes and face the consequences is hard, but essential," says Sandberg.
Satov agrees: “You want them to learn when the stakes are low, not when they get their first credit card."
Get Them Interested in Interest
When it comes to the temptation of credit, says Satov, your kids need to understand that it's not free money. She recommends letting your child plug figures into an online credit card payment calculator that shows how long it will take – and cost – to make minimum monthly payments. She cites an example: A balance of $1,000 with an interest rate of 18% will take 10 years to pay down at a total of $1,798.89. "That's nearly $800 in interest! That ought to get a kid's attention."
Spend By Example
Keep in mind that your children also learn by watching. "If your kids see you constantly going on shopping sprees and not distinguishing between 'wants' and 'needs,' that's what they will perceive to be normal adult behavior and will likely follow suit when they grow up," says Satov.
That's not to say you can't splurge from time to time; in fact, such purchases can be used as teachable money moments. "Explain to your child that those 'extras' have been planned and budgeted for above and beyond the costs of the family's needs."
After explaining credit to your kids, take a minute to think about your own finances. Learn how Chase Slate can help you better understand your credit health.
For more tips and resources on mastering your finances, visit chase.com/financialfitness.
Illustration: Edel Rodriguez Gina LaGuardia is a freelance journalist whose work has appeared in BELLA Magazine, ReadersDigest.com, Huffington Post and other publications.