No one ever said parenting was easy. And when it comes to talking to your tween about money, things can get tricky—especially if you're unsure of where to start.
You want your nine-to-twelve-year-old to be prepared for the future and make wise financial choices. Yet you also want them to understand the realities impacting your household budget and money decisions right now. So how do you strike the right balance?
Use these 6 strategies to teach your pre-teens financial responsibility when times are tough.
1. Discuss Money During Dinner
One of the best ways to teach your kids about money is to have frank conversations about your family finances. Make money part of your everyday dinner table conversation and ask for your kids' ideas and opinions.
A few discussion items you could add to the family agenda:
- • Budgeting: Start with the budgeting basics—an essential life skill everyone should learn. Explain how you create your family budget and why.
- • Income: Discuss where your income comes from, such as wages, self-employment or a side hustle, and how taxes impact your earnings.
- • Credit and loans: Touch on the purpose of mortgages, consumer loans and credit lines, student loans and credit cards. Stress the importance of responsible credit use to build a good credit rating.
- • Taxes: Keep your tax explanation simple. For example, "We pay taxes to our government so they can provide needed services, like defense and Social Security. States focus on education and health. Local governments pay for things like garbage collection and school transportation." You can also teach tax terminology that everyone needs to know.
- • Expenses: Remind your child that the money for your housing, heating, electricity and food comes from your family's income.
- • Needs vs. wants: Discuss how to decide if an expense is a need or a want. Needs are things necessary for us to survive, like food and shelter. Wants are things we'd like to have but can live without, like a new laptop or a trip to Disney. Sometimes it's hard to tell the difference between needs and wants.
- • Setting long-term vs. short-term savings goals: Help your child set a short-term savings goal. Then encourage them to start saving regularly for a longer-term goal, such as a car or for college, to instill the habit of regular savings.
- • The value of investing early: Introduce investing and compound interest with a simple explanation: "One of the best ways to save money is to invest it, earn interest on your investment and then also earn interest on the interest you have already earned. This is called compound interest. The longer your money is invested, the more compound interest you'll earn and the bigger your investment grows." Then talk about the importance of automating your investments, plus buying and holding for the long term.
- • Emergency funds: Talk about how an emergency fund helps to pay for unforeseen bills like the last unexpected expense your family faced (car repairs, vet bills or unplanned home maintenance).
Understanding family finances prepares children for budget changes you may need to make when dealing with situations such as job loss or a changing economic environment with higher prices and interest rates.
2. Take Your Tween Shopping
This might sound renegade but teaching your child how to spend is just as important as learning how to save. A family shopping trip can be enormously educational: You can explain how you decide which items to buy and why you choose certain brands or products over others. This helps kids learn how to "comparison shop," as well as assess “needs" versus “wants."
One easy place to start is the grocery aisle, as depending on your family's income, food can take a big bite from your budget. In 2021, annual food expenses ranged from $4,875 for families in the bottom fifth income group to $13,973 for the highest group, according to the USDA Food Prices and Spending Report. 1
It's also important for kids to understand that food prices can increase over time. For example, the Consumer Price Index for Food 2 shows food prices rose 10.9% between October 2021 to October 2022.
So if you're trying to cut expenses, it makes sense to look for ways to lower your food costs. With your tween on your team, you can find ways to cut back together at the grocery store.
3. Give Them an Allowance
Encourage your kids to make wise decisions by giving them an allowance and letting them manage their own finances.
Giving preteens an allowance lets them practice budgeting, makes them mindful of spending choices and helps them understand the value of a dollar, especially when money is tight.
Show them how to split their allowance into three portions—one for fun spending, one for short-term goals and one for long-term goals—but don't force them to do this immediately.
It may take weeks (or months) for tweens to learn that spending an allowance all at once will mean being “broke" the rest of the week. But it is a valuable life lesson.
When setting up an allowance for your tween, consider your family budget and the cost of things your child might want. For example, you could use the current cost of a child's movie ticket as a benchmark for a tween's basic allowance.
Suggest additional tasks or money-making side jobs for your tween to earn extra money. These could include seasonal household tasks like clearing rain gutters or bagging leaves.
READ MORE: Why Even Your Young Child Needs an Allowance
4. Help Your Kids Open a Savings Account
Savings accounts help teach tweens the importance of setting aside money for the future. Help them open a savings account to start regularly investing.
A savings account offers a safe place to store money and watch it grow. Saving for a rainy day becomes even more evident when tough times are approaching.
Once it's set up, you can introduce interest rates and explain how compound interest works (if their math skills are up to it) to your tween. Show them how to use this simple savings calculator to discover how much they'll need to save each month to meet their savings goal.
Also, ensure they understand any monthly fees and service charges so there are no surprises down the road.
You can open a UGMA/UTMA savings account at Riverstones Vista Capital on behalf of your child.
LEARN MORE: Types of Savings Accounts for Kids
5. Explain the Basics of Credit
Explaining credit to your preteen may feel challenging because of the variety of credit available and the math behind interest rates and costs. Yet it doesn't need to be.
Start by showing (not telling) your kid about credit, as recent research suggests “parent financial modeling" and “experiential learning opportunities" can improve the financial well-being of young adults.3 What does that mean? Instead of lecturing your youth, focus on modeling the behavior you want to see and providing real-life opportunities to learn.
For instance, show your kids how you responsibly use credit in your family. This is a simple and effective way to explain credit basics.
Explain how and why you use your credit card and pay off the monthly balance, as well as how you earn credit card rewards to use towards trips, purchases, or paying down your credit card bill. Some parents may even consider making their preteen an authorized user on their own credit card.
While many credit card companies do NOT have a minimum age requirement for authorized users, think carefully before giving your 9-to-12-year-old as an authorized user on your account. Remember, irresponsible use could negatively impact your own credit rating.
Talk about your mortgage or student loans and how borrowing to pay for things that increase in value can make sense under certain circumstances.
And remember that teaching your tween the benefits and pitfalls of credit is easier when you make it fun.
Use these free online resources to introduce basic credit and financial concepts to preteens.
- • Consumer Financial Protection Bureau School Age Children & Borrowing Conversation Starters
- • FDIC Money Smart Lessons for Younger Tweens Grades 3 to 5(Lesson 5 'Which Way to Pay' introduces credit)
- • FDIC Money Smart Lessons for Older Tweens Grades 6 to 8(Lesson 9 'Borrow' is about Credit)
- • Family at Home Financial Fun Pack for 3rd to 5th-grade students(ages 8 - 10) includes intro and activities to currency, budgeting, needs and wants
- • Family at Home Financial Fun Pack for 6th to 8th-grade students(ages 11 - 13) includes videos, activity sheets, and basic explanations of budgeting, savings, and insurance.
READ MORE: Ready for a Credit Card? First Learn These Basics
6. Explain Insurance Essentials
While your preteen doesn't need to know all the nitty-gritty details of your life insurance policy, they should understand that insurance helps protect your family from financial hardships in the face of unexpected, life-changing situations.
Explain why you purchased life and health insurance and what they cover. Discuss how auto insurance helps protect your family from expensive bills that can arise from an accident and why it is important to have homeowners' insurance.
Start the Conversation Today
Talking to your kids about money in tough economic times can help prepare them to make better financial choices in the future.
Letting your tweens make some financial decisions now may help them learn about budgeting and other important concepts, such as saving. Giving them a small allowance to manage helps them learn to make wise spending decisions.
Use these tips to start conversations with your tween about money and savings. And remember: understanding finances is an ongoing process, so take advantage of every opportunity to further your tween's financial education.
Sarita Harbour is a financial freelance writer with over 12 years of experience writing about personal finance for families, 12 years of experience as a banker and financial advisor, and 30+ years of experience as a mom! Learn more at Harbour Content Development Inc.
READ MORE: Why You Need to Teach Your Kids Money Skills
Sources
1. USDA Food Prices and Spending Report
2. USDA ERS - Summary Findings Food Price Outlook 2022 and 2023
3. Family Relations: Interdisciplinary Journal of Applied Family Science: Talk is cheap: parent financial socialization and emerging adult financial wellbeing