When Julia Askin was growing up outside of New York City, her parents were savvy about turning everyday conversations into financial lessons. For Askin, a marketing coordinator for a New York-based mobile app company, those conversations took place whenever little Julia wanted money to buy something.
From an early age, Askin’s parents emphasized the direct connection between work and money. When she was just six years old, Askin would earn stars for chores that her parents would tally on the refrigerator. Those stars could be redeemed for a reward, which for Askin, usually meant something from the Disney store.
Turning a child’s frequent requests for money into an ongoing dialogue about expenses, financial priorities, hard work and saving is one way to have meaningful and regular money conversations with your children. Here are five tips for raising children who know the value of a dollar—and the importance of being thoughtful about their finances.
1
Connect Money to a Child’s Choices
When she was a teenager and wanted to spend the day with friends in New York City, Askin’s parents required their daughter to list out an estimate of all of her expenses for the day, from fares for the train and subway to the cost of her meals. Only once she’d made a budget would they hand over any cash.
On one teenage trip into New York City, Askin forgot to purchase a return train ticket and also overspent on lunch. The result was a run-in with a transit policeman who demanded she exit the train before her destination. “I realized that had I been wiser and spent less on lunch, I could have been prepared for my emergency,” she recalls. “It taught me to plan ahead and try to account for the unexpected.”
2
Start Early
One of the joys of being a kid is not worrying about money. And while you don’t want to expose young children to the stresses of keeping up with mortgage and car payments, you can still begin to build their awareness of basic financial concepts. Children as young as five can benefit from exposure to financial concepts, notes Deborah Meyer, CEO of Worthy Nest and author of Redefining Wealth: A Parent’s Guide to Purposeful Living.
“It’s difficult for young kids to understand money when so many of us purchase items with debit and credit cards,” she says. “To make intangible concepts like savings real, count change and dollar bills and then deposit that money at a brick-and-mortar bank. For example, my six-year-old and I will sort pennies, nickels, dimes and quarters before a trip to the bank. Then I talk to my nine-year-old about how the deposit we’re making will earn interest,” she says.
3
Distinguish Between Wants and Needs
Financial conversations with children aren’t just about dollars and cents—they’re also about values and priorities. One helpful topic to discuss with young kids is the difference between a want and a need. For example, food for dinner is a need while a gaming console is a want. Introduce this concept to kids and discuss it with them enough so they instinctively know the difference between wants and needs; this will help give them a necessary budgeting and saving skill.
“The earlier your kids understand the difference, the better they will be at saving money,” says Gregg Murset, a CPA and CEO of BusyKid, a mobile app that teaches kids about money. “Have them get into the practice of asking, ‘want it or need it?’ before each purchase.”
4
Different Ages, Different Topics
Just as there are age-appropriate movies, books and video games, discussions of financial topics should also change depending on the child’s age. The focus will differ based on the maturity level of each child, but for kids under the age of 10, it’s best to cover the basics of expenses, budgeting and financial responsibility.
Then, between the ages of 10 and 12, children are ripe to learn about investing, says Brian Davis, director of education at the website SparkRental. First, explain the basic concept of investing—how money invested can earn a return over time—and consider doing a trial run. “In the beginning, have kids take a portion of their income and ‘invest’ it with you, then deliver returns. This way, they internalize the value of deferred gratification and investing,” he says.
For ages 12 and older, Davis suggests encouraging kids to become entrepreneurs by having them mow lawns or shovel driveways to finance their college education.
5
Save as a Family
When everything about family finances is regarded as mom and dad’s responsibility, there aren’t many reasons to have money conversations with your children. But you can change that dynamic—and make money management and savings a regular topic of discussion—by coming up with a savings goal to pursue as a family.
The goal itself doesn’t really matter, though you won’t want it to have such a high price tag that it will be difficult to reach. Possibilities include a trip to an amusement park, a night at a hotel or tickets to a ball game. Once your goal is set, ask your kids for suggestions about ways to save enough money to reach it—perhaps by eating out less or renting a movie rather than going to the theater. As a family, track the progress toward your goal by watching the balance in your account grow. Then enjoy the reward together and talk about what it taught everyone about money. Pursuing goals like this helps develop excellent money management skills and is far more productive than just a pep talk that can be quickly forgotten.
Teaching your children about money is a process. Sometimes they’ll be eager to learn, while other times they may not want to listen. But starting early and offering regular lessons can make all the difference in helping your child become a confident, independent adult.
A former editor at Los Angeles magazine, Chris Warren’s writing has appeared in publications ranging from Institutional Investor and Forbes to National Geographic Traveler, Oxford American and Greentech Media.
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For more from this series, get our 5 Tips for Better Money Talks with Your Parnter.