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Parents have a lot to deal with. You’re feeding, clothing, cleaning, running back and forth to practices…all the while trying to find teachable moments – windows of opportunity to train the adults they will become. No easy task, especially with a topic like money.

So, how do you talk to your kids about money and finances? What’s the right age to begin the discussion, and what’s the right approach? Begin by thinking about how you view your own financial responsibility and what principles you hope they will practice. Then, get your message across early and often.

We Bring Our Own Experiences to the Table

Feelings and attitudes around money are often rooted in what we learned from our parents. This usually forms the default lessons we pass along to our children – good or bad.

In my own experience, my parents were very open and comfortable talking about money. That wasn’t my wife’s experience. But, even if what you took in wasn’t positive, you can process that, learn from it, and do something different with your financial health and start a new legacy with your children.

I like using the analogy of physical fitness. Starting new financial habits is like building financial muscles – it won’t happen overnight but, with persistence and dedication, you’ll see progress. Through the exercise of sound financial judgment, we build healthy habits in our own lives, and show our kids how to “get in shape” for the marathon that lies ahead.

Teach Sound Financial Habits Early

One of the best things you can do for your children is to begin instilling sound financial habits early through example and a variety of hands-on strategies. Here are a few that work with various age groups:

Give Them Money of Their Own

When the money comes out of their own pocket, kids quickly learn to appreciate how money works in the real-world. Even as toddlers, you can set up a pretend store or restaurant in the living room for some early money lessons.

When possible, give your kids a chance to earn money from chores or small side jobs (lemonade stand, babysitting, yard work) that they can save and spend. This is a great opportunity to discuss wants vs. needs and how to budget. And, it’s a good time to set up their own savings account and let them see their money work.

Children of any age can start learning the value of money when they have to spend it on what they want the most. In an increasingly digitized world, working for what you earn helps create a connection between the labor that it takes to make the money and the financial gain.

Encourage a Three-Way Split

As kids start to earn money, it’s helpful early on to understand that money is essentially used to save, spend and give. If they start now, they’ll build the muscles they’ll need later in life. I like to think of three buckets:

  • Saving
  • Spending
  • Giving

They’ll have some money to spend, some they’ll see grow, and some that will let them experience the joy of giving, showing them that money is simply a tool to be used in a variety of ways.

Let Them Help Others

Like adults, children are often more generous when they can help others in meaningful ways to them. When I went away to summer camp at 10 years old, my parents gave me $5 to spend and another $5 to use to help someone else. I experienced two things that week – the joy of giving and a sense of responsibility to steward the money well and give in a way that would make a difference.

If no immediate needs or causes come to mind, help them research charities on a site like Charity Navigator or the Better Business Bureau’s Wise Giving Alliance.  You’ll also build trust with your kids. As they show you they can make wise choices with $5, you can build on that and entrust them with more as they get older.

Teach the Value of Saving 

Children can also learn the value of saving very early. A piggy bank for the youngest children is an excellent visual because they can see the money accumulating. We see kids as young as five open savings accounts and learn how interest accumulates. You could even provide a savings incentive by matching some of the dollars she chooses to save.

When she wants to buy something, it’s a chance to show her that she can save money by comparing prices online rather than buying right away off the shelf. On the other hand, as we’ve all learned, this is sometimes best learned by experience – if they insist on an on-the-spot purchase, you might teach them what they could save the next time by slowing down and putting in a bit more thought.

Interest Them in Investments

When your children become teens, you can give them some additional experience with investments. If they’re interested, play an online stock market game to learn how the stock market works. Some parents open an investment account and help their kids invest a small amount of money as a next step.

Prepare for Launch

As your children start to manage their money independently, usually in high school, speak to them about responsibly using a checking account and a debit card. It’s also time to learn about credit cards…before someone gets them signed up and they learn the hard way.

As they plan for college, have them research the cost of tuition, books, housing, and other living expenses so that they can appreciate how much living outside the home will require financially. This is a huge opportunity often missed in the college process – learning what college actually costs!

Most importantly, you’re building confidence and trust with money that will be with them throughout their adult lives and carry on with future generations.

Let Them Learn from Your Money Mistakes

One of the hardest parts of open money communication for many parents is sharing lessons they’ve learned the hard way. But they can be some of the most meaningful.

Maybe you didn’t begin saving for retirement early enough or wish you had given more to charity instead of buying that new car. By hearing your personal experiences, they can perhaps avoid those same mistakes but, even more importantly, they learn that mistakes happen, and they should think of them as learning experiences rather than sources of embarrassment.

It’s also important to let children fail with money. It’s tempting to jump in and prevent these small mistakes, but these lessons aren’t nearly as expensive when learned early. Maybe your child spends far too much on something you know he’ll never use. Or, she makes a poor choice with a gift. Instead of bailing them out to save hurt feelings, let them experience this small failure and help them back up so that they can build knowledge, experience, and resilience over time.

What They Learn Will Shape Their Attitudes as Adults

Financial habits start early, for better or worse. At 9 or 10, I remember sneaking more money into the savings bucket because I had learned about compound interest (yes, that’s my inner nerd showing). I later came to realize that I wasn’t balancing saving with giving the way I want to. Others who don’t learn about allocating their money between saving, giving and spending might mentally spend their entire paycheck as adults before it’s even in the bank, leaving nothing for retirement savings.

There are plenty of young people whose first real experience managing their finances is dealing with a credit card they’ve run up or seeing their first student loan payment. And it has little to do with income levels – I’ve met people making $25,000 a month who are hopelessly in debt and others making $3,000 a month who pay all of their bills and still manage to set something aside.

It almost always comes down to the attitude toward money, not the amount of money. As a parent, you can shape this reality for your children.

Before you know it, your children and the other kids in your life will be independent adults. The hope is that they’ll have the tools and values to handle their finances entirely on their own. With the right strategies and your guiding hand, they’ll be prepared for what lies ahead.

Are there any tips, tricks or lessons that have worked for you? Contact Us…we’d love to hear more!

Zach Hamilton

Financial Advisor

About the Author

Zach graduated from Gonzaga University with degrees in Marketing and Finance. While growing up, Zach heard stories from his grandfather about his work as an insurance agent, and other stories from his dad who was an investment manager. They both spoke financial “languages” but had completely different dialects. Recognizing the breadth of the financial vocabulary ultimately led to Zach’s passion for financial planning. He credits his family for this enthusiasm. Zach sees his time with clients as an opportunity to translate all of the different – and often confusing – information they’ve heard and provide clear guidance for each unique situation.

Zach enjoys working with people – his clients – who also appreciate that their financial decisions have an impact not just on themselves, but also on their families, charities and their own life legacy. Many of Zach’s clients have a strong desire to “make a difference”, and they rely on his financial expertise to magnify their philanthropic goals.

The “Alterra” name was coined by joining the Latin roots “alter”, the origin of the word “altruism” with “terra” meaning earth or land. This name reflects the company philosophy of “clients before profits” and providing firmly grounded advice.

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