Teaching kids financial literacy is actually about much more than ensuring they have a good handle on how money works and how to manage finances throughout their lives. Most of the central lessons we teach by discussing good money habits are about creating a healthy mindset that will prepare kids to deal confidently with many aspects of life. They’ll learn to focus on what they have, rather than what they lack, how to comfortably delay gratification and make considered choices about how they spend their time AND their money, how to set and adjust realistic goals, and how to prepare for and take advantage of opportunities as they arise.
The lessons learned early will help them live full and satisfying lives later on. For example, they’ll know to be wary of student loan debt and how to look for smart ways to pay for higher education. They’ll understand that there are tons of scholarships available and some are super easy to apply for.
That discussion can wait but, as you are thinking about how to start the money conversation with your kids, here are a few powerful reasons to start as early as possible.
Establishing a Healthy Financial Mindset
Most adults who experience difficulties in their financial lives report that they grew up in households where money was not discussed at all, was treated frivolously or was a source of fear and stress. The lesson they learned was that money was something mysterious that controlled their family’s decisions, rather than a tool that could be used to accomplish specific goals.
That often leads to confusion about how much money is actually needed to accomplish goals. For a little kid, $1,000 seems like a fortune. But we know that doesn’t cover even a minor portion of most families’ expenses in a month. Because numbers remain pretty abstract to kids until they have done a lot of math homework, try to explain things in terms of how much of the total family “pie” goes towards specific expenses in your family budget.
That way, they’ll at least start to understand the various financial demands they’ll face later in life and that there isn’t a never-ending pot of money. Make sure they know their clothing, toys, fund, and doctor’s visits don’t just magically happen because you waved a plastic card at a machine.
Take the time to teach gratitude, as well, by demonstrating it yourself. When you make a big purchase, for example, talk about how fortunate you are to be able to work hard and make enough money to buy nice things. That helps keep the emphasis on what you have, rather than what you lack, and emphasizes the effort that allows you to enjoy those things.
It also demonstrates the trade-offs that inform how you spend your time and helps them understand what it means when Mom or Dad “goes to work.” Later on, those lessons will help them make their own choices about working for an allowance or getting their first part-time job.
Similarly, share your longer-term planning with your kids. Here again, you don’t need to teach them to read a spreadsheet. But you might use one to create, for example, a picture that illustrates how much you will need for a vacation, and how you put a little bit towards it each week or month. Even if you have your August beach house vacation paid for in January, you can make the financial lesson part of the anticipation and excitement.
That will also help instill the idea of delayed gratification and financial discipline. “If we buy this bicycle now, we’ll only be able to get you an OK bike that won’t be fun for long. But if we wait a little while and save up, we’ll be able to get the one you really want.” That lesson only gets more valuable as they start to earn allowance and make decisions about what and when to buy with their own money.
With kids becoming tech literate long before their math skills mature, and most of our shopping taking place online, show them how you use available tools to save time and find the best deals. They’ll quickly understand how tools like easy-to-install browser extensions like Capital One Shopping or Honey can help you compare prices and avoid overpaying.
That can help teach them to shop before buying. Explain the concept of sales, coupons, discounts and other deals that can make a purchase more affordable or allow you to buy more of something you really need. Show them how being in an organization or career field can come with special perks like military discounts or other exclusive deals.
You can use that to introduce the concept of rewards cards, as well, to help start the discussion about the use, and mis-use of credit and the obligations that come with taking on debt. When they reach their tweens, you might even set up a “loan from the family bank” and help them calculate how interest impacts what they would end up paying depending on interest rates, length of the loan, missed payments, or other factors.
Read More: How to Make Money as a Kid
Because you’ve created a solid foundation to help them think about money and finances when they are young, as your kids get older, they’ll be prepared to look at some of their really big choices with those lessons in mind. They’ll understand that spending all the money they make at a summer job on having fun might mean having to miss out on even cooler opportunities once they get to college, or even that they’ll need to keep working part-time when they’d like to be focused 100 percent on getting a degree.
They’ll know to be wary of student loan debt and understand what it takes to pay for higher education. But don’t save that conversation for the last year of high school. You can work with them to start looking for high school scholarships early on in their high school careers and apply for them during senior year.
By starting the discussion around money and finances early, you’ll help your kids develop a healthy relationship with money and give them an invaluable tool that will help them at every stage of life. They’ll understand how important it is to make a realistic and responsible approach to finances part of all their plans – work, spending, saving, paying for education, managing debt.
As adults, they will understand money as a powerful tool they’ll use to accomplish their goals and have the knowledge, and financial confidence, to recover from any missteps along the way.