By Stacy Vindler
It’s time to have “The Talk.” Not the birds and the bees, but the one about how money doesn’t grow on trees. It’s a topic parents don’t necessarily avoid but just don’t get around to explaining. Talking money usually gets as far as the child knowing their parents make it, they ask for it and they keep asking until they get that new toy they saw in aisle two. Financial experts discourage keeping your kids in the dark about finances and suggest that parents start talking money at an early age. It’s the same as getting your child to brush their teeth when they’re very young, If children develop good financial habits early, it will be a part of their daily lives going forward.
This could also be a time to look honestly at your own financial habits and use them as examples – for better or worse. We tend to choose plastic instead of paper, so children see less cash and more of their parents swiping cards, creating a false perception of how money works. As Cheryl Cassman, assistant vice president of financial education and PR at InTouch Credit Union, points out, some children aren’t even familiar with bills and coins. She encourages parents to explain what money is, what it looks like and how it works. “As a parent
you need to tell them there is a place where you put your money where it’s safe, and in return you get a card that you’re able to use at the store,” Cassman says. During the financial education classes Cassman teaches for children, she explains the basic functions of ATMs, debit and credit cards. “Kids don’t understand that money is earned, hard to come by and even harder to keep once you have it,” she says. “You can’t just go to the bank and take more.”
Kindergarten is a good time to begin The Talk, because children start receiving money from the tooth fairy, doing chores or for holidays and birthdays. Ask your child where money comes from, and take it from there. If little Sally asks for a credit card for her next birthday, explain that she’s too young and emphasize its proper use in terms she can understand. Clarify that it is simply a way to borrow money, but unless you pay it back each month, everything you buy with a credit card is much more expensive than it would be if you had paid with cash.
When children are in middle school or at an age when they can understand more advanced financial principles, introduce the basics of a budget. When it comes to their money, they’ll listen up. Explain that when they get money, it should go into an account, and from that account they must pay their bills. “Force their balance to go negative, and say uh-oh – you’re going to spend more than you bring in or save. What are you going to do?” Cassman says.
There is no doubt children know how to spend (your) money, but part of good financial education is helping children learn the difference between needs, wants and wishes. On your next shopping trip, demonstrate smart spending habits, or help them set a goal to save their money for that special toy. To encourage both saving and spending, teach children to divide their money into different categories. “We use a fun acronym: Never Ignore Smelly Wet Pigs, which stands for Needs, Investments, Savings, Wants and Philanthropy,”. Kids are usually savers or spenders, with neither extreme better than the other. Through practices such as separating their money, children think about how their money should be used. Consider it a no-risk investment in your child’s financial future.