A good father is a teacher, mentor, guide, and friend. You want to help your kids avoid the many pitfalls and dangers they’ll encounter as they grow, but is how to teach kids about money in your plan?
Our Father’s Day feature here at Penny Calling Penny is your complete guide to kids and money. We’ll cover the cost of being a parent, how to talk to your kids about money, and when and how to start saving.
When is Father’s Day 2022?
Father’s Day falls on the third Sunday of June here in the US. This means that Father’s Day 2022 is June 19th.
How to Teach Kids About Money As a Father…
Most fathers teach by doing. You show your kids how things should be done, and guide them through their first try. When it comes to something more intangible, like financial responsibility, you might find it stumps you.
You’re not alone – in a survey with more than 8,000 families, most parents agreed they should talk about money with their kids. However, 74% talked about money less than once a week and 14% said they never talked about money.
The study also found that a majority of parents thought that kids should learn about money between the ages of 5 and 8. Few practiced what they preached; most kids are 15 years old before their parents start teaching them how to handle money.
So how and when should you talk to your kids about money?
First, break “money” down into categories. Practically speaking, there are only 5 categories to talk about when it comes to money.
You can teach your kids about these categories one at a time, and build on the past discussions you have with them. Using this system means you can start talking to your kids about money as young as two or three!
When should you teach your kids about money? Always. From the time you start talking to them, start talking about money. American culture has this idea that talking about money is something embarrassing or shameful. That kind of attitude has got to go when it comes to your kids. If you don’t talk to your kids about money now, they’ll end up worse off for it.
How to teach your kids about money is a different question. That will depend on the age of your child, whether you choose to give them an allowance, and (eventually) whether they have a job of their own. Let’s take a look at some of the ways you can start talking to your kids about money at any age.
… When Your Kid is 0 – 5 Years Old
You might not think there’s a need to talk to a newborn about money, and you’d be right! While your baby is getting themselves acquainted with the world, though, you have some work to do.
When you were preparing to welcome your child, you might have wondered: how much does it cost to have a kid? Roughly, you’ll be looking at $15,000 a year – and that’s not counting college!
Wondering when to start saving for a child’s college education? The general rule of thumb is the same as saving for retirement. The earlier, the better! Even though your little one can’t hold their own head up yet, you can start saving for college.
If you start when your child is small, you can put about $200 a month into a 529 savings account. If that sounds huge, remember that the longer you wait, the more you have to save at once. $200 is a lot, but $2,000 a month is even more, so start soon!
Once your baby reaches toddlerhood, you can start bringing them into the conversation. The first building block of how to teach kids about money is spending. Toddlers can learn about lists as young as 2 or 3. Talk to your kid about lists when you’re out shopping for food or clothes. A budget is just a list of where you can spend your money!
- Open a savings account for unexpected expenses as your child grows
- Open a 529 or other savings account for college
- Consider investing in I-bonds that will mature with your child
- Be ready to talk about money
- “Alright, let’s get this cereal instead of that one. It makes more sense for our list and our budget!”
- “We should spend some of this birthday money on a book, some on a toy, and some on that cool shirt. We can get everything on the list and stay within your budget!”
- “No, we can’t stop for ice cream, it’s not on our list or in our budget for today. Maybe we can budget for it after our next grocery trip!”
… When Your Kid is 5 – 12 Years Old
As your kid gets older, they can take more of an interest in money. Their personalities and worldviews are starting to develop, too, and kids’ money habits are set by age 7. This means that talking to your elementary-age child about money is critical.
At these ages, kids can start to ask hard questions about money –“Why do some people have no money?”, “Are we rich?”, “Are we poor?”, “Why can’t we just make more money?”, “Why do people have to work for money?”
Ignoring or brushing off these questions can be tempting. After all, these questions are uncomfortable for adults to answer. However, your kid is learning to navigate the world and see their place in it. Your answers as a parent matter!
Between 5 and 12, you can start teaching your kids about saving. Since they see transactions happen around them all the time, your child understands spending pretty well. Saving, though, is a less public action, so it’s important to talk to your kids about it.
Start with showing them your own saving habits. How much are you setting aside for emergencies, college, vacation, and retirement? How do you decide how much to save and when?
Since your child understands spending and you’re trying to teach savings, this is a great time to start giving your child an allowance. Help them make a budget for themselves, and offer them more money in exchange for extra work.
Your kids will carry these skills with them into adulthood and learn that they can earn more money through extra work, or be content with their normal “salary”. You can even start teaching kids this age about credit as a part of trustworthiness.
Say they misspend their allowance or ask you for an advance on their allowance and then don’t do their chores. You can talk about how this makes you less likely to give them money in the future, and their options for mending their “credit” with you.
- Involve your child in the family budget. Show them how you spend and save, and even where their allowance comes from.
- Give your kids an allowance to let them learn about saving and budgeting.
- Open a kid’s checking and savings account so they can learn to navigate online banking.
- Consider getting your child a book like Heads Up Money so they can learn more on their own
- “Do you want to see our family budget? This is how we manage grown-up money in a way that lets us take care of the whole family.”
- “How much of an allowance do you think you should get? Why?”
- “Do you think money is important? Why or why not?”
- “That wasn’t a smart money choice. Why did you make that choice? What did you learn from it? How can we make better money choices in the future?”
… When Your Kid is 12 – 18 Years Old
Once your kid hits the teen years, talking about money seems much more “real”. Your child can get their first job starting at 16 (or even younger in some states), giving them access to money apart from you.
This is when setting your child up for adulthood becomes more important. You’ll need to start talking about credit, loans, bills, and taxes.
Your teenager is starting to have bigger “wants” from their money. For example, getting a single toy or treat isn’t their big goal anymore. Your teenager might want to be going out to the movies regularly, want to go on a camping trip with friends, or even try to save for a car.
Meanwhile, their “needs” from their money are still pretty low. You’re handling housing, food, and clothing for them. To prepare your teen for handling adult money, you’ll need to start involving them in adult costs.
This might mean starting a “parent tax”, and taking some of the money from their allowance to put towards the family grocery budget or your teen’s college savings. When your teenager gets their driver’s license, involve them in the costs of having a car.
And when it comes to your teen’s many wants, help them prioritize. You can even get them set up with a budgeting tool like Mint. Walk them through the steps of giving themselves a spending budget for the day, week, or month. Show them how they can save for big goals, and check in with them periodically.
Finally, give your teen the financial advantages only you can give. You can list a child as young as 13 as an authorized user on your credit card. They don’t need access to the card, and they never even need to make a purchase. As long as you have good credit utilization and make your payments on time, you can help your kids improve their credit score before they ever need a loan or card of their own.
- List your child as an authorized user on your credit card to boost their credit score.
- Involve your child in adult expenses like car insurance or have them pay “rent” towards a savings account you’ll give them access to after they move out.
- Get your child set up with a budgeting app, spreadsheet, or journal.
- Help your child get a better understanding of credit scores and loans.
- “I noticed you’ve been spending all your allowance. Saving is a really important skill, how can I help you get better at it?”
- “It sounds like you have to make a choice with where your money goes. Can I help you weigh the pros and cons of each option?”
- “When you move out in a couple of years, you’ll have bills to pay. Here’s the plan for how I’m going to help you practice that now.”
Financial Wisdom for Father’s Day
Father’s Day comes around once a year, but learning how to teach kids about money is an “all the time” kinda job… just like being a father. Fathers are important figures in a child’s life, and the more you can pass on to them, the better.
Building good savings habits, not damaging your credit score, and making smart financial choices may have been something you learned later in life. The boost these skills will give your kids is unmatched. The sooner you can teach them these skills, the better off they’ll be.
Who knows? Maybe the financial skills you’re teaching your 6-year-old will come back around on another Father’s Day in the form of a wonderful gift. The best gift of all, though? It’s knowing that you’re giving your kids something you never had – financial literacy and a brighter financial future.
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