(WTNH) — Teaching your child about money goes beyond saving their pennies in a piggy bank. Clinical psychologist Dr. Ryan Loss and wealth expert with HFM Wealth Management Kevin Quiros answer questions about where parents should start.
Should you discuss your finances with your children?
Talking about how much money each parent makes with your children is something that should vary by age. For young children, who likely do not have a good grasp of the value of money, specific numbers should not be discussed as they will not understand the true value of that number. As children age and understand more about the value of money, one can share more about their finances.
What situations might prompt a parent to discuss finances with their children?
With young children, a very common situation that might prompt a conversation about finances is when the child is in a store and wants something or multiple things. As much as behavioral challenges may abound after talking about some general financial means and limits to them, it is important to set clear financial limits with your children.
What’s a good way to introduce money and when should it be done for parents with younger children?
Money is the tool or mechanism used in an exchange of a good or service.
Very young children have not experienced the world enough to put money into the bigger, more complicated context of how a community functions, a democracy operates, and how capitalism works.
What are some good ways to put money in the context of the world around them?
It starts at home, grows into their community, and then expands from there.
At home, it starts with four ways to use money: earn, save, spend, and donate. All families and all communities have to find a way to balance all four behaviors. You can’t have one dominate. The key to a successful household is to balance them.
· Earn: take a dollars’ worth of coins and divide up the piles. If you earn a dollar, X% goes to taxes, x% goes for your housing, X% goes to food, X% goes to pay for the car. Anything left over, can get saved.
· Save: Earning money on your money. Banks, investing in public companies – stick with companies young kids can relate to. Disney, Netflix’s, Costco, Amazon (places they experience).
· Spend: Kids see a parent spend on a daily basis and it’s the easiest way to put things in context for them because it’s a physical transaction. Are you paying for a product or a service – toothpaste is a product, getting your teeth cleaned is a service. When you purchase an item, is it a need or a want? Discuss what that means. When mom and dad remodel the kitchen, is that a need or a want? Are things that a child desires, like ice cream, a need or a want?
· Donate: There are organizations in the community who help families and people in need (some families can’t get basic “needs”). We can give money, clothes, food, and our time to these things.
Once kids have the basic concept of earn, save, spend, and donate you can talk about the importance of a community. This would be things like jobs, businesses, government, and schools in your community that make it work.
When kids are older and get these basic financial concepts, what should parents and kids do next?
Once a child reaches middle school, you can introduce concepts of how to run a business. From the money side of things, its important that a child be able to open a bank account to see how credits and debits work. Money is both visible and invisible – cash and coins are visible forms of money. Credit cards and checks are invisible.
In high school, kids should start understanding all elements of how a business functions – everything from a balance sheet, income statement, and cash flow to the marketing and sales of a business.
Should kids have allowance?
There are two schools of thought on this one. Are you a household that includes chores as part of your responsibilities of helping run the household or do you reward chores with a financial outcome? This is personal preference, but I would be careful about where your child is with the financial literacy building blocks mentioned earlier. There are different amounts suggested that you can search for online – the age of the child in dollars per week is one figure.