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How to Talk to Your Children About Money

Learning about money, saving, and budgeting are life skills that everyone should know. This learning can start in childhood. In fact, talking to kids about money from an early age is important and it can be the first step towards helping them develop positive financial habits.

Many people avoid talking about money with their children because they feel like it’s too complicated or confusing or because they feel like money discussions are best left to adults. However, money is a big part of our lives and the sooner you introduce your child to budgets and money management, the more likely it is that they’ll have a good handle on these concepts when they’re ready to go out in the world and earn and spend for themselves.

Depending on the age of your child, there are a lot of ways to teach them about money. It’s important to structure your lessons so they are appropriate for your child’s age. Here are a few tips to get you started.

Teach the Difference Between Wants and Needs

Distinguishing between wants and needs is something that many adults have issues with, but it’s an important lesson for children and one of the first ways that many parents broach the subject of money and budgets.

Needs are what is necessary to live life: Food, water, shelter, necessary clothing, etc. Wants are basically everything else. Some wants are more important than others, but they’re still items that you could technically live without. Help your children understand the difference and make sure they know that even if they really, really want something, that doesn’t make it need.

Help them Set Priorities

Once your children understand needs and wants, teach them that it’s important to focus on needs first. Wants can come next if the money is available.

Very few people have unlimited money. That means nearly everyone needs to prioritize how they spend what they have. This can be a good lesson for children. If they want to buy two things, for example, help them compare the prices of the two items as well as how much they value each one. This can help them learn that you need to make choices with your money.

Help them Understand Budgets

When it comes to teaching kids about budgets, the first step is to let your children know that you have a budget yourself. Many kids think that “money grows on trees” and you can get whatever you want whenever you want it. Once kids learn more about money, they might think that the only options are “we have enough money” or “we don’t have enough money.” It’s important to let them know that even if you have enough money to buy something, it’s important to look at your budget and make sure that money isn’t needed for something else.

Budget talk doesn’t have to be complicated. Start by explaining that each person only has so much money, so they need to spend it wisely. Some purchases are more important than others and that’s what budgets are for.

Depending on your child’s age, you may want to have them sit with you when you’re putting together your budget. You can even allow older children to have some input into how the budget is structured. For example, you could say “We have money available to buy you a new backpack or a new pair of shoes. Which one is more important to you?”

Explain how Credit Cards Work

It’s hard for children, and for many adults, to understand credit cards. When kids see their parents buying something on credit, it’s difficult for them to connect the swipes or taps of a plastic card to actual money. Make sure your kids know that every time you use a credit card what you’re actually doing is borrowing money and promising to pay it later.

For older children, teach them that the longer you take to pay the money back, the more it will cost. Explain that when you owe money this is called debt and that’s it’s important not to have too much debt because then it becomes difficult to repay.

Teach the Importance of Saving

Saving money is important for many reasons. You can save in hopes of achieving a goal (such as going on a vacation), you can save for the future (such as for retirement), or you can save for emergencies. Help your kids understand that if they want to achieve financial goals, they’ll need to save. Tell them some of the goals you are saving for to show them that everyone needs to save to get what they want.

Give younger children a piggy bank or a money jar where they can save the money they get for their allowance and/or for doing chores at home. When they get old enough, you may want to consider taking them to the bank and opening an account.

Encourage Money Discussions

A lot of people don’t like to talk about money. Unfortunately, when you don’t discus money, it becomes harder to learn about it. Tell your child that learning about money is important and help them understand respectful and appropriate ways of discussing money and budgets.