We Can Make Teaching Our Kids About Money Part of Everyday Life

When it comes to teaching kids fiscal responsibility, as of this writing, only 21 states require high school students to take a personal finance course. That's up from just 17 states two years ago. And as parents, next to discussing the birds and the bees, money ranks as one of the most intimidating conversation topics a parent can face. A recent survey revealed that although 85% of parents agree it's important to have financial discussions with their kids about saving and spending money, 41% of those same respondents admit a reluctance to discuss money matters.

As a parent of three young children myself, I can relate to this. But it really doesn’t have to be that intimidating. If you don’t know how to get started (or if you’re just worried about saying the wrong thing), here are a few ways to get started.

Start early. Start small. And keep it simple.

Start early

You’d be surprised to learn how early kids start picking up concepts about money – and how quickly those ideas can solidify. According to researchers at the University of Wisconsin, Madison, children can grasp economic ideas such as value and exchange as early as age 3 – albeit at a very basic level. This is also when kids are developing the cognitive skills to learn concepts such as delayed gratification, which is a cornerstone of financial education. And it doesn't take long for that early understanding to take root. According to a study by the University of Cambridge, by the age of 7, children are already forming money habits. (And habits, as we all know, are hard things to break.)

Start small

Having an open, up-front discussion of money will help kids learn that it’s not a taboo subject, or one to be feared, but rather a natural, ongoing part of everyday life. That doesn’t necessarily mean family sit-downs with everyone gathered around the table as most families are strapped enough for time as it is. But weaving these discussions into regular family activities can be an easy and memorable way to get your message across.

Watch for opportunities to inject money discussions into your daily interactions with your kids. For example, you could explain why you chose a particular brand at the supermarket based on price. Or you can use the commercials on television to discuss basic financial concepts. Finding ways to weave the discussion naturally into regular interactions is the key. Your kids may not understand everything you’re telling them, but they’ll come to understand the importance of the subject.

Even at elementary-school age, let kids manage a small amount of money, whether allowance or from birthday gifts. Let them spend (or give, or save, or invest), and also let them feel the consequence if they run out of money. For example, what if they spend too much on new shoes, and don’t have enough to go to the movies with friends? What a great way to learn while the stakes are relatively small, but grow into adulthood already having that experience. 

Keep it simple

Help your kids understand the four “buckets” into which money falls: spending, saving, investing, and donating. Each has a unique role in their financial future. And while they may not fully grasp the differences at first, it’s important to expose them to the concepts.

Spending, they’ll no doubt understand fairly quickly. That candy bar (or Playstation) costs money. Explaining the difference between saving and investing, however, can sometimes trip parents up. One approach is to define them in terms of longevity; saving is intended to provide short-term security, while investing is meant as money for the future, whether for college or retirement. The last bucket, donating, is another monetary concept that comes fairly naturally to kids particularly in an age of cause marketing and social justice. Helping children learn the value that can come from responsibly and thoughtfully giving money to a worthwhile cause, person, or organization can be one of the most valuable financial lessons they’ll learn.

Depending on their age, an effective strategy to explain the four buckets can be to use simple cans or jars with each one dedicated to a category. This encourages them to decide how much they wish to devote where and gives them a tangible example of what might otherwise seem like an abstract idea.

It’s OK to not be sure

Relax. It’s only natural to have reservations about initiating a money conversation with your kids. But even small efforts to teach your kids about money will go a long way toward setting them up for a lifetime of financial security.

So have fun with it and show yourself (and your kids) lots of grace along the way. Start early, start small, and keep it simple.

Hunter Yarbrough is an executive vice president and financial adviser with CapWealth. For more information about Hunter and CapWealth, visit capwealthgroup.com.