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How to Talk to Your Kids About Money

Tips for Talking to Kids About Money

The topic of money can get complex, but luckily there are tools and a few clever strategies that can make the process of teaching your children dollar sense easier:

  • Start young -- At around age 5, a child is already interested in playing with coins. As a parent, you can use that interest as a bridge to start discussing some of the basic elements of money by comparing coins and showing your child what coins can buy in places like the market. Piggy banks are a great second step in this process. Giving your child coins to place in a piggy bank will help introduce the concept of saving. Coins that accumulate in a piggy bank are a dramatic visual reinforcement of the time value of consistent saving long before your child is introduced to real life bank accounts and investing.
  • Use visuals -- Coins are a good place to start, but when your child gets a little older -- say 7 and up -- you can branch out into the areas of spending and wise saving. To avoid making this all sound like the "clean your bedroom and pick up your toys" talk, using aids can help. There are a number of software packages on the market that teach kids about saving and managing money. There are also several useful Web sites that help kids learn money lessons by tracking their spending or helping them save for a specific goal.
  • Use real life lessons -- Taking your child with you when you shop and bank can teach him about checking accounts, signing up for rewards and rebates, and using coupons to save money on things he would likely buy anyway. This is a low stress approach that will inspire questions and encourage a useful dialogue between you. Oh, and check with your bank to see if they have a tour or tutorial program to introduce children to banking. Some banks offer this useful and friendly service.
  • Give your child an allowance -- Giving children money for incidentals is a traditional way to help teach them the value of a dollar. Money experts like Suze Orman are skeptical of the practice, though, and recommend a more measured approach: To help your child develop a realistic and responsible relationship with money, expect him to perform certain basic chores, like cleaning his room or clearing the dinner dishes, for no compensation. Those tasks are part of family life expected of everyone. Offer compensation for certain additional chores, like raking leaves or washing the car. Instead of offering the money in advance, though, only provide payment after reviewing the completed tasks with your child. This is a great time to talk about money and reinforce the lesson that money compensation is related to consistent, reliable performance.
  • Encourage saving -- If you teach your child one enduring lesson about money, make it the importance of saving. There are a number of ways you can bring the lesson home, but none works better than showing him that his money has profit making potential all its own. Urge your child to save a certain percentage of his allowance or earnings every month, and consider contributing to the kitty if he manages to save the minimum you agree on. Experts suggest encouraging your child to save at least 10 percent of his earnings, and saving from 30 to 50 percent isn't too much.

When your child becomes a tween or young teen, help him set up and maintain a free checking account and interest-bearing savings account. Consider it his introduction to the real world of money management.