How to Talk to Your Kids About Money

Much like driving, cooking, or doing laundry, personal finance is an important life skill. Knowing how to save and spend money responsibly can prepare you kids for important financial firsts that will come later in life, such as buying a car or getting their first credit card.  And because it isn’t yet taught in schools, as parents it largely falls to you to teach your children the ins-and-outs of managing money. While this may seem intimidating, and you might not know where to start, it’s important to help lay the groundwork for your children’s financial literacy. Here are some handy tips to help you along the way.

When to teach kids about money

While it’s up to you as to when you want to talk to your kids about money, it’s a good idea to start as early as possible. Giving children a basic understanding of how money works from the age of three can ensure they'll be able to grasp more complex financial concepts as they get older. When they begin asking for items such as toys and new clothes, you can use that as a good opportunity to open up the discussion. Here are some tips for opening up the conversation at various stages in their lives. 

Keep it simple to start

Particularly with young children, start slow and keep it simple. Begin by teaching them the value of different coins and bills so they have a basic idea of what money is worth. Explain that parents have to work to afford things like a home, clothes, and food, and that it’s important to ensure enough money is made to cover these expenses while also saving up for things like holidays, college funds, and retirement. A great (and fun) exercise is to role-play as a shopper and store clerk to teach your child how financial transactions happen every day.

You don’t need to get into specifics (such as how much money you make, how much your house costs, etc.); those sorts of conversations can be had as your children mature and want a more sophisticated understanding of finance. 

Having these conversations early (and regularly) will provide an appreciation for money that will certainly come in handy when discussing whether or not the family can afford things the children ask for.

Encourage and teach budgeting

As kids get older, you can include them in talks about the family’s budget. Be as vague or as detailed as you’d like -- the important thing is to show your children that you’re thoughtful about the money that comes in and the money that goes out. This will help them understand the importance of budgeting as they get older and take on additional financial obligations.

For younger children, you can start talking about budgeting as soon as you give them an allowance, pay them for chores, or they start their first job. Help them develop a simple budget, which includes the money they expect to make and the things they’d like to spend money on. Whether it’s weekly costs (such as money for restaurants with friends), toys, or larger items they hope to save for, this will help them develop an appreciation for the cost of things and the work required to afford them.

Open a bank account

Opening a first bank account is an important step in a child's financial journey. Most banks offer youth accounts for children and adolescents. These typically offer very low interest rates, unlimited (or a set number of free) transactions, and no fees.

With a bank account, they can learn how to deposit and withdraw money. Over time, you can also introduce them to more complex ideas such as interest and debt.

Try to make their bank account central to their financial life. See if they'd like to begin having a "direct deposit" allowance instead of cash, allowing them to control their balance and view its ups and downs. You can also show them how to use their bank's mobile app and website.

As they get older and begin transitioning from an allowance to paycheques from a part-time job, they'll be well-acquainted with the ins-and-outs of chequing and savings accounts, allowing them to responsibly handle a larger balance.

Share financial realities 

As children get older, don’t shy away from sharing lessons you’ve learned along your financial journey. This can include credit card debt you may have amassed at certain times or irresponsible spending decisions (vehicles you couldn’t quite afford, pricey vacations, etc.). 

This will show your children that you’ve had experience making questionable financial decisions and learned from them, hopefully instilling them with a sense of confidence that their parents might, in fact, have a little more wisdom in the field of finances than they previously thought.

Implement money meetings

Once your children reach their teenage years, you might want to allow them to have a more active role in family finances. Doing so could be as easy as having monthly, weekly, or bi-weekly money meetings. During these talks, go over money earned and spent as well as predicted and surprise expenses. This will get your kids in the habit of regularly thinking about money and how it’s used.

This is a great way to ensure that finances are a regular part of your kids’ lives and will help them develop good habits that will carry over once they’re out alone in the world and responsible for managing their own money.

The bottom line

Parents naturally want their children to have an easier life than they had, making better decisions and learning from the lessons passed onto them. This sentiment is no truer than when it comes to finances.

That’s why it’s important to have conversations about money as soon as possible. Get your kids in the habit of thinking objectively and strategically about what they earn and spend from an early age. This way, they’ll be more likely to have a solid handle on managing their finances as they grow older and life gets more complicated.

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