Whether you give your children an allowance, allow them to earn money by completing household chores, pass along cash gifts from relatives or encourage small-stakes entrepreneurship like a lemonade stand, your kids are already practicing some money management.
Even just understanding that they need to ask you to purchase something they want is proof that they have a basic understanding of how money works.
Sometimes parents put off talking to their kids about money because they think they are too little to understand finances. Others are uncomfortable talking about money in general, so they avoid the topic.
While you don’t need to explain compound interest to a kindergartner, there are lots of concepts that can be introduced in a kid-friendly way.
We asked financial experts, some of whom are also parents, to identify the one thing they believe kids should learn early on to set them up for a lifetime of financial security and success. Here’s what they had to say.
The value of money
“Understanding the value of money means understanding what it takes to earn, manage, and grow it,” Bola Sokunbi, founder and CEO of Clever Girl Finance, told HuffPost. To teach this to her own children, Sokunbi lets them “make their own little money mistakes with the money I give them.”
“For example, if they spend all the money they get as pocket money on candy the first day they get it, they have nothing left to save towards the things they want (e.g. a new game) or invest in the brands (companies) they are interested in so their money can grow,” she said.
Such practice with small amounts is necessary in order for kids to make good decisions in the future when they’re dealing with larger quantities, she explained.
Sokunbi emphasised that financial education isn’t only for the rich. “Our finances don’t have to be perfect for us to teach our children,” she said. Something as simple as a trip to the grocery store can become a learning experience.
When Sokunbi shops for food with her children, she has them “try to figure out how many items on the grocery list we can buy with the budget we have.” In addition, she asks that they “find savings, like sales and alternative or less expensive products so we can complete our shopping list and still have some cash left over that we can use for a fun treat or they can put towards savings.”
Ramona Ortega, the creator of AI-based financial advisor WealthBuild, also suggested using shopping trips and talking about the family budget as ways to teach children how money works. “Being honest about financial constraints is crucial, especially if the family is on a tight budget,” she said.
Parents face the challenging task of helping their children understand how much money will impact their lives and also that accumulating money is not the most important goal.
“Money is just a means to an end. By defining our ultimate objectives, we can effectively manage our finances,” Ortega told HuffPost. “We must prioritise instilling a healthy relationship with money in children, ensuring they grasp its value in the pursuit of their dreams.”
They should keep learning
Financial savvy is an acquired skill, not an innate one. Money is a tool, one we can improve our proficiency in using.
“It’s a tool that requires knowledge to work; no one is born knowing the details on how 401ks work. But everyone has to learn about it, and that means that you can too,” said Kara Perez, a financial educator and the founder of Bravely Go, a financial education company.
“We can learn about money and then use that knowledge to change our lives,” she told HuffPost, noting that financial education was what enabled her to pay off $30,000 of student debt.
Teaching your kids can be as simple as opening up a dialogue about how they want to spend their money.
“Talking about how much money they have to spend, where they’re spending it, and where the money came from is a great starting point for their understanding, and opens the door for a lifetime of money conversations,” Perez said.
Money should support your joy and wellness
Rita-Soledad Fernández Paulino, founder of financial education community Wealth Para Todos, told HuffPost: “The most important lesson that I want to teach my own children is that money is a tool to support your wholeness, which includes your joy and your wellness.” This includes your well-being in the present, in the near future, and after retirement, she said.
Creating a budget means looking at debt payments and other fixed and variable expenses – including self-care for your present wellness as well as investments, “because investing is making sure that you have money later on in life to spend on your joy and your wellness,” Fernández Paulino said.
The best way for parents to teach this to their children is to model it, she said. Are you taking care of yourself by getting regular exercise, or maintaining the boundary of not checking email after work?
“Whether you are discussing money with your child or not, they’re already picking up on your behaviours,” said Fernández Paulino. “Whatever we do really becomes what’s normal for them and what they believe is acceptable. So be mindful of that.”
Money isn’t a taboo topic
Shang Saavedra, a financial coach at Save My Cents, has found that “the people who often feel the least equipped when it comes to their personal finances are those who come from families where money was taboo to discuss. Or their parents never really cared to discuss it.”
For this reason, she recommended that parents start early, sticking to age-appropriate topics. Kids as young as 4 and 5, who are able to count, can begin to understand money as a concept.
When it comes to higher-order ideas, like money being a means to an end, “I would probably start introducing that concept more around middle to high school as my children start having their own dreams for their future — and have the rational capability of starting to plan out their higher education and career plans going forward,” she said.
The importance of saving
Yes, saving is critical when it comes to being prepared for an emergency or reaching a long-term goal, but we should also save “for fun,” Jen Hemphill, an accredited financial counsellor and podcast host, told HuffPost.
“I think we get too caught up in ‘We need to invest and we need to save for emergencies, we need to get out of debt,’ but I think we also need to enjoy our money,” she said.
It’s never too early to begin teaching this, Hemphill said. “If they’re very, very young and maybe if they have an allowance, they can put some money aside to save.”
Her own children, now 16 and 20, both have savings accounts. Her older son is in college and working, and is putting money aside to build up his emergency savings. Her younger child also sets aside some of the money he receives for his birthday or on other occasions.
Teens are capable of understanding how to grow their money with compound interest, and should be encouraged to think about building up savings, Hemphill said. You might point out that a purchase they want to make or an activity they want to try could be made possible with a savings plan.
Hemphill said that sometimes parents are “scared to teach their kids about money because they fear that, because of whatever financial mistakes they make, they’re not equipped. But all parents are equipped to teach their kids about money from their experience.”
Sharing what you have been able to accomplish financially and what missteps you may have taken are both powerful ways to educate your children.