Are our attitudes toward money hardwired from birth, or do we pick up important life skills from those around us? The good news is that when it comes to money, nurture triumphs over nature. This implies that we have the ability to form sound or bad financial habits at any age. Early financial education provides the best chance for success, which is why it’s so important to teach our children money lessons that are appropriate for their age.
We begin to form our financial belief system as early as preschool, and we carry these beliefs throughout adulthood. The following information will help you prepare your children for a more secure financial future.
When Should You Introduce the Topic of Money to Your Children?
Start as soon as you can, in a nutshell. We all developed both good and bad money habits when we were young, when we were just a few years old. By the age of three, we can understand simple financial concepts like counting or delayed gratification (saving versus spending). By the time we reach the age of seven, our unconscious thought patterns around financial decisions are well-established. It’s not the math at this young age that counts. Instead, our habits are formed by the actions we take, the choices we make, and the feelings we associate with money.
Even if our views, attitudes, and even money-related behaviours are more deeply rooted as adults, they are never wholly permanent. At any point in our lives, we can modify them. It could only need a bit more tender loving care to make it happen. The takeaway from this is that it’s essential to assist our children in forming healthy habits at a young age so they can get off to a good start. It’s never too early to discuss money with your children or involve them in routine financial discussions.
The responsibility literally rests and begins with you.
Children imitate how their parents behave while making financial decisions, spend money, and even talk about it. Being a good example for your children is the most crucial thing you can do as a parent. Ignoring generic chats about money is the error you want to avoid since it does not imply the presence of positive attitudes and spending behaviors. It’s crucial to be deliberate in your approach to teaching, as well as when you introduce new ideas.
Start by setting aside time once a month for your family to discuss finances. Additionally, it need not be like attending an accounting lesson. Discuss important issues like your income this month and how it compares to your car payment, rent or mortgage, or the price of your forthcoming vacation. The objective is not perfection. Instead, emphasize open communication.
You Can Use Age-Related Money Lessons
It’s critical to adapt your financial education lessons for your children’s age while teaching them about money. A framework you might employ with your children revolves around five straightforward ideas: earn, spend, save, give, and invest.
Introduce the ideas of spending and saving to kids under the age of 10. Kids may comprehend counting and simple concepts of money at this age. Giving your children a modest stipend and allowing them to choose what they want to buy at the store is a wonderful idea at this time (e.g. the toy or the three pieces of candy). Allow them to decide later whether to save money for a future purchase or spend money now. It also teaches kids that there is a limit to the amount of money they can have.
10–14 years old (middle school) – Spending and saving have been modeled; add earning and giving. You can offer a financial reward at this age in exchange for employment or household duties. You name it: mowing the lawn, shoveling snow, walking the dog, putting out the trash. This teaches the idea of getting paid for a task or work. It’s critical to go above and beyond only paying them. Discuss with them the importance of saving money for a purchase, the impact of spending on their ability to save, and the benefits of making charitable donations. You could even want to include them in a larger family discussion about volunteering and giving back.
15–18 years old (high school) – To complete their understanding of finance, introduce the idea of investing. They are now able to invest some of their money if it makes sense for their level of maturity and you can provide supervision now that they have real jobs and earned revenue. This will enable you to talk about fundamental investment ideas and start them off on the right path early on with healthy investing practices and attitudes.
Try getting them to invest in well-known brands like Apple, Nike, and Lululemon (these are examples and not recommendations). Following familiar firms and keeping an eye on the performance of equities and the stock market as a whole can help them learn important lessons. You can also consider investing in an index fund, such as the S&P 500, to demonstrate the idea of diversification, or owning a variety of businesses rather than just one or two.
Helping your children create a Roth IRA is a terrific approach to get them started with investing. You’ll not only help them understand the value of saving for the future—a notion that can be challenging for teenagers—but you’ll also provide them one of the most valuable advantages of investing: time. They will be able to grow their money for longer and continue to accumulate that nest egg well into adulthood if they start early.
These drills and lessons are not intended to be perfect. It’s just to get things going. Small lessons learned over time and implemented consistently can have a significant influence.
Three Simple Ways to Stay on Track
It can occasionally seem daunting to teach your children sound financial practices, but it doesn’t have to be. Here are three methods to ease the procedure and make it a little less demanding.
- Make it simple; if your allowance or reward system is too difficult to follow, you won’t. Find a quick fix that works, and use it consistently. Over time, you might alter, but at least you’ll keep doing it.
- Make it a regular part of your life – A wonderful approach is as simple as involving your children in regular financial decisions. Since you’re already making the decisions, this is a fantastic chance to involve them. For each case, you should provide some context, including what it is, why it matters, and how you chose wisely.
- Allow them to fail; despite how strange this may sound, we can learn a lot from our errors. Limit the mistakes and instruct them on what they learnt and how to choose more wisely in the future.
No matter your child’s age, you have the chance to instill in them sound financial practices that they can use for the rest of their lives. These advice will enable you to instill in your children a positive outlook on life, prepare them for success in the future, and perhaps even contribute to the fuller and better lives of future generations of your family.
Schedule a free, introductory conversation with a CFP® professional at Facet Wealth now to find out how they can help you examine your spending patterns, prepare your children for financial success at any age, and leave a lasting legacy for future generations.