Knowing how and when to start teaching kids about money and identifying what financial skills they need can be tricky, but experts say it’s crucial for their future.
Knowing how and when to start teaching kids about money and identifying what skills they need can be tricky.
Parents often don’t want to worry their children and want them to be worry-free, but having financial confidence and being literate can be key to ensuring a happy and comfortable future for them. Ultimately, boosting your child’s financial confidence is crucial, experts say.
“Having good financial responsibility is essential to success in life because financial skills impact major milestones, like getting married, getting a job or buying a home,” Susan Hirshman, director of wealth management at Schwab Wealth, told CNBC Make It. Advisory.
Employers can run credit checks to evaluate employees, for example, he explains, and making major purchases like a home can also be affected by your money history. Establishing good habits early on can help avoid any problems, Hirshman said.
Other dangers kids can fall prey to if they’re not financially educated include potential debt traps like “buy now, pay later,” says Seth Wunder, chief investment officer at Acorns.
Eric Landolt, head of family counseling and art and collecting at UBS Global Wealth Management, went a step further.
“Financial education should be a basic skill, a basic skill in the sense of liking, reading or writing or doing something in a way that should be brought to everyone in all circumstances,” he said. Decisions about money can also have a broader impact on society depending on how it is spent and invested, she added.
It’s clear how important the money conversation really is. But when is the right time to start having it? Experts have different opinions, but it could be a lot sooner than you think.
Wunder said that six years is the age when children begin to understand some concepts related to money.
“This is the age when kids start to understand math in school and are able to understand the consequences of ‘if it’s gone, it’s gone’ and putting money aside for the things they really want,” she said.
By the time children are seven years old, many of their financial habits are already formed, he added, noting that children are aware of and curious about money much sooner than many parents might expect.
Hirshman suggests starting even earlier, between three and five. “This is when they have the ability to make decisions and reason,” she said, adding that the ideal is to start simple and work your way up to conveying value for money to parents.
Landolt falls between the two, saying that five years and older is a good time to start, as children are more receptive to messages about family values conveyed by parents or grandparents at that time. He recommends teaching children ages five to eight “very, very basic things” like that money has value and how decisions made with it have an impact.
For kids ages 8 to 12, the issues can be more complex, Landolt believes. “You can talk about the different types or uses of money. So it could be saving or spending, some of those concepts, building versus investing.”
As children become adolescents, between the ages of 12 and 15, they may be given more responsibilities, such as managing a small budget, Landolt explained. This includes concepts like spending, saving and understanding how decisions to spend money can affect how much money is left over afterward, but in more depth, she said. You could also start discussing family-wide financial decisions, such as supporting philanthropic projects or charities at this age and getting children’s input on them, Landolt said.
Finally, 16- to 18-year-olds can learn how the financial system and banks work, a topic that Landolt says will also be covered frequently in school.
Whenever you decide to start having money conversations with your kids, there are a few things experts recommend keeping in mind.
Hirschman believes that three of the most important things to remember are to be consistent, focus on action, and have ongoing conversations.
“You can let them make small, teachable mistakes so they can learn from them,” he said.
One way to do that is by giving them an allowance, he said. Wunder agrees with this suggestion, explaining that he can teach kids to budget, spend, and save responsibly.
Making sure the conversations are age-appropriate is also key, he said.
“How you approach the subject with a six-year-old will be different than with a teenager, but they all have the common theme of teaching children the difference between need and want,” Wunder explained.
Finally, and as with many things, parents who lead by example can also have a huge impact, Hirshman believes. “It’s important that parents practice what they preach and try not to give mixed messages,” he said.