Parents have a responsibility to teach their children about finances — and that’s true for wealthy families and less affluent families alike.
Kids are smart enough to pick up on signals that their family may have more than others. But if the conversation stops at the benefits that money can bring, you’re missing out on important life lessons. They’re not really being taught how to be financially responsible once they leave the house and become independent. What steps can parents take to teach both sensitivity and responsibility about money?
Step 1: Find teachable moments
It can be difficult to find time to sit down and talk specifically about wealth, but natural opportunities to teach pop up every day.
For example, you can incorporate financial responsibility into an impromptu math lesson about money: If you find something that originally cost $100 and it’s on sale for 30% off, you can ask kids how much the new price is — and, now that they are only spending $70, what they might do with the $30 that’s left.
Step 2: Take a lifelong view toward financial literacy
Every child should have a tool kit of basic financial literacy skills by age 18, including concepts such as how to spend, how to save, how to give, and the value of a dollar.
This can start very early with an exercise as simple as a three piggy banks analogy. You encourage the child to divide any money they receive into three piggy banks: spending, saving, and community/charity. This shows the concept of different types or purposes of money as opposed to all being for spending. Repeating this exercise can help ingrain the habit of saving regularly.
By late childhood or adolescence, parents can add concepts such as what it means to invest, what companies one might invest in, and how you assess risk with an investment.
You can encourage children in high school to think about college expenses logically by examining the costs and coming up with a credible college budget. Ask them to consider basic questions: What will you need in order to make this happen? What will the family need to supply, and what is the student expected to supply, in terms of tuition, books, room and board, transportation, and normal spending money?
And parents and grandparents can continue to encourage responsible, long-term financial responsibility by giving young adults an incentive to begin saving for retirement early. If you’re able, and they have earned income, offer to match what they save into a Roth IRA. It’s also wise to coax contributions to a 401(k) at work.
Step 3: Show your kids how it’s done
Your child’s healthy relationship with money begins with an open and honest relationship within a family that models good money behavior. These discussions can be challenging, but the fruit is well worth the labor.
Stress education and expect them to do well in school. The parents who do really well in teaching financial literacy typically lead by example — they tend to be savers, and they’re more careful with spending money. Remember to be that example.