Has your child asked you a question like this: “How much money do you make?” or “why can my friend get those cool new shoes and I can’t?” In many households, money is the secretive, unspoken topic that lies just beneath the surface of many family conversations. Some parents may be hesitant to bring up financial issues with their kids for fear of them revealing too much personal information to friends or because they feel awkward due to social comparisons around money. However, children are invariably curious and observant. Whether we discuss finances with them or not, soon enough they have ideas about how money works and the values surrounding it.
With this in mind, it’s often preferable to discuss finances with children as openly and honestly as we can. Rather than avoiding the topic of money, discussing it with children can be a wonderful educational opportunity to help them learn valuable life lessons.
Why Financial Education Matters
Although we might assume that children are too young to understand financial matters, experts tell us that children comprehend a lot more than we realize. One study found that by age 5-10, children already had tendencies towards being either “spendthrifts” or “tightwads.” Interestingly, these tendencies did not fall directly in line with their parents’ financial tendencies. This raises some interesting questions about whether children’s financial personalities may relate to their temperaments, overall personality, or other factors besides parental influence.
Studies like this reveal that children may be picking up a lot of information about finances through observation and life experience. Thus, even in childhood, it can be helpful for parents to discuss financial information with their children. Experts suggest that children have already established financial habits by the age of 7. This means that our tendency to delay financial discussions until children reach adolescence may be misplaced. By discussing financial issues sooner, we have a better chance of being able to mold children’s values and habits regarding money.
Financial education in childhood can reap positive benefits as well. Several studies have shown that children who receive financial education as children go on to have better financial habits as adults. Some of these healthy financial habits included paying bills on time, keeping a budget, and maintaining an emergency savings fund.
Furthermore, parents’ openness and direct teaching about finances also impacted children positively. Parents who practiced these habits in their family tended to have children who had better self-control in regards to spending, showed less impulsive buying and had lower financial anxiety. Thus, it seems that despite our own reticence, children need our guidance when it comes to financial learning and may benefit greatly from it.
Easy (and fun) Ways to Start the Financial Conversation
Discussing financial issues with children doesn’t have to be the awkward, uncomfortable conversation that we might imagine. Trying to incorporate financial education into typical family activities and conversations can make the topic easier to approach and more fun for children. Here are a few simple but fun ways to address finances with children:
- Make Budgeting Fun: Is your family planning a vacation or perhaps an outing to an amusement park or zoo? Include your children in the budgeting process. Help them research how much each aspect of the outing will cost–admission, food, transportation, etc. Show them how you add up the costs and where you might be able to save money.
- Solidify the Link Between Work and Money: Younger children, in particular, may not completely understand the relationship between work and money. Helping make this connection clear can be an important step in fostering financial literacy. Explain how the work that you do pays a salary. You can make this concrete by allowing them to earn money BY doing household chores for the family or neighbors.
- Play Games: Games that involve play money can be very helpful in making financial topics more tangible to children. Games like Monopoly, PayDay, or Life are all good examples of money-based games that children can play with you. Pretend play is also a great approach to foster financial literacy in children. Children often love to play restaurants or grocery stores. Using play money to “buy” food or groceries can help them gain more insight into money matters.
- Consider Needs Versus Wants: The topic of “needs vs. wants” is a great one to broach with children as soon as they are old enough to begin asking for toys or items at stores. Using real-life examples of needs (i.e., food, clothing) and wants (i.e., fancy toys, sweet treats) can help solidify their understanding of the difference.
- Model Your Money Values: Each family has their own values and habits for handling finances. It can be helpful for children to see “behind the scenes” of how you manage money in your family. If you save for emergencies or for retirement, offer to show them how you do that (you don’t have to provide actual numbers if you don’t feel comfortable with that). Some families model financial choices with a jar system. They put out three jars⏤one for saving, one for giving to charity, and one for spending on things for the family. This offers children a very hands-on understanding of money management.
- Take Advantage of Technology: Children, especially teens, love technology. You can use that to your advantage by using smartphone apps to help children learn about money management. There are many apps currently available that help children manage allowance money and teach quick financial lessons. Some even allow parents to co-manage an actual bank account with their child.
Although some parents in this current generation were not raised with openness around financial issues in their childhood home, they may want to change this with their own children. It’s clear from the research that children do need intentional financial education in order to learn money management. By discussing finances with children early and often, we can not only foster smart financial skills but also strengthen our bond with them.
The information provided on this site is NOT medical advice and is for informational purposes only. It is not intended to diagnose, provide medical or behavioral advice, treat, prevent, or cure any disease, condition, or behavior. You should consult with a qualified healthcare professional regarding your child’s development, to make a medical diagnosis, determine a treatment for a medical condition, or obtain other related advice.
Michigan Ross (2018). New Research Shows Children Form Attitudes About Money at Young Age.
Bocetta, S. (2020). Need to Teach Your Kids about Personal Finance? Here Are Some Fun and Engaging Ways to Start
LeBaron, A., Holmes, E., Jorgensen, B., and Bean, R. (2020) “Parental Financial Education During Childhood and Financial Behaviors of Emerging Adults”
Vosylis, R. and Erentaite. R. (2019). Linking Family Financial Socialization With Its Proximal and Distal Outcomes: Which Socialization Dimensions Matter Most for Emerging Adults’ Financial Identity, Financial Behaviors, and Financial Anxiety?
Michel, S. (2021). The Importance of Teaching Kids About Money