Recently, I overheard my seven-year-old son and his best friend talking about mortgages.
“People need a mortgage because they don’t have all the money to buy a house,” he said.
“Houses cost a lot of money,” concurred his friend.
“Yeah,” said my son. “Like, a house could cost a thousand dollars.”
I was amused. I was also proud that my son was picking up on some of the financial concepts I’m trying to teach him, and dismayed at just how much more he has to learn. Like most parents, I want to raise financially savvy kids.
So, I asked three experts for their insights on how to teach kids about money.
Walk the talk. Every time we take out our wallets (or choose not to), we’re telling kids something about our values. And, they’re watching. So, before you start talking to kids about money, make sure your actions are in line with your values, says financial advisor and mom of two Caroline Goode (formerly Caroline Hanna), of the Shewfelt McMillan group at National Bank in Surrey, B.C.
In my family, for instance, we value education. So I explain the concept of RESPs to my kids, and how their grandparents and I contribute to their education fund each month.
Talk about it. According to a recent survey by investment managers T. Rowe Price, only a minority of parents (28%) talk to kids about money, mostly because they don’t want kids to worry. But when we stay silent about financial matters, we may be teaching kids that money is unspeakably dangerous or scary, says Glenn Kurlander, father of four and head of Family Governance and Dynamics and Wealth Planning Centers at Morgan Stanley in Purchase, NY. And that’s not the best way to form a healthy relationship with wealth.
But how much should we say? “There’s no such thing as an inappropriate question about money, just some inappropriate moments for some questions,” says dad and New York Times money columnist Ron Lieber. So, let kids know that “Mommy, how much money do you make at your job?” isn’t the kind of question to ask around a crowded Thanksgiving dinner table. That kind of information is best discussed in private, with immediate family members.
Still, the idea of telling our kids exactly how much we make is enough to make some parents squeamish. Talk about expenses first, say the experts. Comment on the price of gasoline or groceries and how they affect the family’s bottom line. And around the dinner table, talk about the car you’re considering buying, how much it costs, and what “0% financing” actually means. Show kids utility bills, and explain how much it costs to run a household. Also, discuss how their grandparents are able to support themselves, even though they’re no longer working, and how you’re putting money aside each month to save for retirement.
Give them an allowance, and teach them what it’s for. “Allowance is for practice,” says Lieber, “not a wage or a reward for doing chores around the house.” And what are kids practicing for? They’re learning the three functions of money: spending, saving, and giving it away, says Kurlander. You and your children should decide what expenses their allowance will cover, what portion of it they need to save, and what portion, if any, to set aside for charity. Over time, transfer more of the expenses, and the responsibilities, to tweens and teens.
And then, says Hanna, “If they don’t manage well, don’t bail them out.” For instance, if your kid has to buy his friend a birthday present but spent all his money, tell him, “I guess you’ll have to make something, or find a way to earn some extra cash.” Those mistakes are a great opportunity, she says, to help kids learn how to make smarter financial decisions.
Disclose more as they get older. Parents have an obligation to disclose the bigger picture of the family’s finances to older teens, says Lieber. “But not until they’re ready.” So, wait until they’ve had practice budgeting with their allowances and until they also understand the household budget.
When Kurlander’s kids were younger teenagers, he began showing them his monthly credit card statements. It was a great opportunity, he says, to give them a larger sense of household expenditures while explaining the importance of paying off a card’s balance each month.
Remember, says Hanna, today’s teens are Internet-savvy. A teen might even go online to career or real estate sites and figure out what her parents earn, or what her house might fetch on the open market. So, provide some context for the numbers.
Involve them. Don’t just tell your kids what you’re doing with your money, says Kurlander. “Actively involve them in decisions.” Pick a family charity together. Give your young teen the job of researching the best options and prices for the next family computer.
Lieber says older teens should have a job — preferably in the service industry, “because it’s humbling; it [gives an] opportunity to work as part of a team, often with people you might otherwise not encounter.” And ensure kids are responsible for paying some of their university costs. “An 18-year-old should have some skin in the game of their education in order to take it seriously,” he adds.