Parents are often uncomfortable talking to their children about money. However, children are exposed to a variety of information and messages about money in TV shows, news stories about the economy, a neighbor losing a job, or when visiting friends or family with more or less money than you. Instead of letting your children guess at and worry about the various aspects on money, it is better that you are upfront about it to them. However, the messages and information you provide need to be age appropriate.
Answer Questions Honestly
Use questions about money raised by your child as an opening for a larger discussion. Begin by answering money questions honestly. For instance, if your child asks for an expensive shoe or gadget that you cannot afford to purchase, it is better to explain this by saying that it costs $100 which can be used for groceries right now.
This is important especially if the family is undergoing a financial crisis. Instead of hiding the job loss or pay cut from the child, parents should explain the issue in clear terms and ask the child to help cut costs. Since children will pick up clues about the crisis, it is better if you explain it to them in age appropriate terms instead of hiding it from them. Frame the issue in simple terms without blaming anyone – your spouse, boss, or neighbor.
Children who hear parents discuss money regularly in neutral tones without any emotional stress will be better equipped to deal with money. Use a general question about the economy to explain how it affects your family’s finances. This will help the child relate better to global economic issues and cooperate with your efforts to deal with your financial problems.
Involve Children in Family Budgeting
When you are making a budget for a holiday or Christmas or even that month, involve your children in the discussion. By explaining to them the allocation of finances and demonstrating that you need to plan your expenses, you will be teaching them valuable money lessons. You can also use the family budget session to help your child decide on what they actually want. For instance if you can only afford to pay for one extra class, one more pair of pants, or a bicycle but not the most expensive in the store, take the child’s desires into consideration by consulting them about what is the reasoning behind your decision and it is not because you said “no” to the child.
When discussing money with children it is better to use concrete examples. This means that you need to relate a certain amount to something they can relate to; $50 can be the cost of groceries for a week or the fee for a month of music lessons. This will help children better understand the concept of money.
When children ask about the different lifestyle enjoyed by family members or friends with a higher or lower income than yours, take the time to talk about career choices and the difference in income this can lead to. This can also be a good opportunity to explain that a higher educational qualification can also lead to a greater income. When discussing income differences or lifestyle choices take the time to explain your decisions. Your children will be able to appreciate the value of budgeting, saving, and investing if you explain your long term goals such as a college, saving for Christmas presents, or a retirement fund.
Value of People
When your child becomes aware of the economic differences among people, you should also teach them about the need to respect people for what they are rather than what they are worth. Demonstrate this by being equally courteous to those who have less than you.
Money and Affection
Advertisements and the media can often confuse children by equating expensive gifts with greater love and affection. If your child raises such issues you need to again explain that affection is not directly proportionate to the cost of the gift.
Parents need to teach children about the power of saving. The best method is to be careful about saving regularly yourself. Talk to your children about saving, interest rates, simple and compound interest, bonds, and stocks, credit cards, and credit card rates. You also need to explain the difference between saving and investing to older children. Children can learn about saving by watching you compare prices in a grocery shop or listening to you ask for a discount at the restaurant. Parents can help children understand the concepts in regard to the value of money by helping them calculate the per-unit cost of the various products they are purchasing. By talking to your children about credit card debt, mortgage payments, and interest rates, they will slowly become financially savvy.
Children can savor the freedom and joy of financial independence by having an allowance. Parents can interest their children in saving and giving by providing an allowance that offers the child some leeway. The allowance should come with clear responsibilities about what it can be used for with same flexibility to help your child learn money management. Instead of specifying exactly what it can be used for, you should provide general guidelines and allow the child make a few mistakes as well. It is better if they make a few mistakes on purchases of a hotdog, a football, or a small toy rather than not teach them these vital lessons and watch them buy a car, home, or TV they cannot afford when they grow older. A problem of this magnitude will be too big for you or them to overcome, at least for a long time.
Provide Clear Limits
Parents need to provide clear limits to their children when it comes to spending as well. For instance, if you are planning to purchase a backpack for your child, discuss the budget considerations beforehand. If you are paying your child an allowance or your child is earning some money from part time chores, you can also tell them what you are willing to contribute toward the back pack they wish to own. This will help teach your child to make decisions regarding their money and what they can afford.