A family’s financial situation can be a difficult subject to bring up with adults, and many find it even more difficult to discuss with children. However, discussions about personal finance with children are very important, in the same way, that it’s important to involve children in joint financial decisions such as the shopping for the weekend and birthday party plans. It helps children understand money, there isn’t an endless supply of it. It’s important to prioritize and make informed choices, as well as understand that different people have different circumstances. So, how do you talk about money with your children?
Discuss finance at home
Money is a serious topic, but that doesn’t mean it has to be boring. Most children are very curious about money and most conversations about the topic are presumably brought up by them.
Many parents will receive questions such as “Are we poor?” or “Why can’t we buy this?”. Regardless of how you feel about the question, it’s important that you don’t ignore it or answer along the lines of “don’t worry about it”. The child is just curious, asking questions reflects their curiosity and willingness to learn. They may have talked about it with their friends or in school, or heard a discussion between their parents, and have now come to you for answers.
Start by finding out what your child is actually asking you. Ask questions such as “What’s on your mind?” and “What do you want to know?” so you can approach the topic on the right level. Be honest. When you understand the reasoning behind the question it’s important that your answer is clear. Don’t simply the truth too much. This is how you help your child learn if it’s important or relevant to them right now.
Involve your children in financial decisions
Another strategy that helps children understand personal finances is to involve them in the decision making for areas that affect the family’s finances. Here are a few tips for situations where children can get involved:
- The grocery store: Ask your child to pick groceries and compare prices based on your shopping list.
- At the cash register: Explain how a bank card works and let them try it out.
- Paying bills: Explain how your family handles finances, where the money comes from, and what it is used for
- Commercials on TV or YouTube: Explain what an advertisement is and how they work.
Discussions about finance for different age groups
3-6 years old
Encourage your child to make their own decision, like picking an ice cream. This helps children to learn how to prioritize. It’s also important to learn how to wait. Pocket money is a good tool for this area. Explain that they need to wait until Saturday to receive their pocket money, and that is when they can buy sweets for the weekend.
6-11 years old
Children are easily affected by their environment during this period, especially by you as a parent. This is why it’s important to practice what you preach. If you haven’t done so earlier, it’s time to introduce weekly pocket money. The lesson is strengthened when the child is responsible for their own experiences and choices. For example, choosing between buying something today or saving for a more expensive item in the future. Or choosing between helping out and getting a reward, or not helping and not getting a reward. Parents play an important role by leading by example.
11-15 years old
Children are more independent during this period, and mature enough to be responsible for their own money. As a parent, you play a smaller role than before, but you can still expand your child’s perspective. A good idea is to introduce and discuss a new concept like interest, saving and investing. How does this affect your family finances? And how can children use this in their everyday life? It’s time to switch your weekly pocket money payments to monthly instalments, and if your child is old enough to start exploring different career paths.
Weekly and monthly pocket money
Money isn’t about coins and notes, it’s about value and priorities. How are you supposed to learn without practising? Giving weekly or monthly pocket money gives children the opportunity to learn that informed decisions allow you to control and manage money.
For parents with children under the age of 11, it can be difficult for children to wait that long until their next payment which is why it is recommended to give them weekly pocket money.
What should the pocket money cover?
What weekly or monthly pocket money should cover varies from family to family. Some children have very expensive hobbies or receive their first mobile phone early on. Usually, weekly pocket money for younger children covers sweets and maybe trading cards or an in-app purchase for their favourite mobile game. When children grow older it is common for them to spend time in cafés with friends and buy more expensive video games. Read more about what you should keep in mind when you give your child monthly pocket money.
What are savings?
Teach children how to save so that they can learn positive habits for the future and increase their understanding of the difference between spending today and setting money aside for something you want to purchase in the future.
Frame the discussion about saving with dreams and goals. When it comes to saving, no dream is too big. To buy things that are more expensive than what one month’s worth of pocket money, children must make wise decisions about their money. In short there are three ways to reach your goal quickly: Spend less, earn more or a combination of the two.
Learning how to save money is an important life lesson. When they grow up they will need to save for the down payment on a home, pension, etc. Learning how at a young age gives them a considerable advantage.