Learning to talk openly with your kids about your own finances is one of the best ways to give them the financial education that they’re not getting anywhere else. Keeping finances hush-hush does more harm than good. If you don’t teach your kids about finances, they’ll likely have to get their education from the school of hard knocks.
We shield our kids from lots of things in the real world, but one thing we don’t shield our kiddos from is our finances.
How you incorporate financial education into your parenting is up to you, but I will give you some important topics to get you started. I’ll also talk about how to handle things when you don’t feel like you are a good financial example.
Just by being aware and open in discussing these money issues will give your kids a huge advantage in the real world. Let’s dive in!
Do I need to share specifics?
If you were totally new to knitting, but wanted to learn how to make the cute washcloths your friend was always making, would you want her to give you a general overview and not bother you with specifics or would you want her to sit down with you and show you her secrets step-by-step?
If you really wanted to be successful at making a washcloth, you would definitely want the step-by-step detailed instructions, rather than just a basic overview.
The more we give our kids in the way of knowledge and experience, the more successful they will be.
Don’t get me wrong, teaching your kids in general terms is way better than skirting the whole topic of finances, but opening up your real budget can be more beneficial in the long run.
But how specific?
The depth of your answer will depend on your children’s ages and understanding, but even at a young age kids can grasp more than you might think.
At the same time, older children may know much less than we think they do. What is second nature to adults who have been managing their own finances for years, can be mysterious to kids and teens who haven’t had firsthand experience with it.
How specific you get when it comes to numbers will depend not only on the age and maturity of the child, but also on what you and your spouse are comfortable with. Seriously consider being a little more open than society says you should be comfortable with.
Case in point
For years, my husband Mike was a Boy Scout merit badge counselor who regularly talked with 12- to 17-year-olds about money and finances. To illustrate the principles, he would openly share our family’s income, expenses, liabilities, budget, and the rationale for our financial decisions.
It’s amazing how excited the boys get about seeing how money really works in a family. It’s also amazing (and a little alarming) how few of these teenagers have ever seen a paycheck, or a budget, or know how taxes work, or how to prepare for a major purchase, or why carrying a credit card balance is expensive, or how much compound interest can grow the money you owe or have invested.
Some of these boys would be on their own within a year. Some of them will have to learn the hard way, through stress, heartache, and debt, that they weren’t well-prepared to manage their own money. Don’t let your kids enter that world blind. New-found independence carries enough challenges without adding a financial handicap to the mix.
4 things you should tell your kids about your finances.
1- Where the money comes from
Your kids have probably gathered that money doesn’t grow on trees, but they may not really understand where it comes from. Unless you have a job where you receive cash tips, then your kids probably never see the money that you bring in.
Understanding where the money comes from helps kids understand the importance of work. My kids would love for Daddy to stay home every day, but they know that he goes to work so that he can earn money so we can pay for the things we need.
Tying money to honest hard work is a principle that even young children quickly grasp.
2- How much stuff costs
Most kids probably have no idea how much the electric bill is. Property tax is a foreign concept. Do your kids know how much a gallon of milk costs? Do they know how much your mortgage or rent costs each month?
If your kids are like mine, they will likely suffer from some sticker shock when they learn the cost of everyday essentials. And boy do they all add up!
The nice side benefit of being open with your kids about how much things cost is that they will likely take better care the things all that money bought and be more appreciative for what they have.
3- How you decide what to do with your money
Show your kids how you budget your money. You are their first example and teacher. They might learn budgeting principles later in school (if they’re lucky), but faceless scenarios will not be nearly as powerful as personal examples.
Show them how you put your money first toward the most important or pressing expenses, how you plan ahead for upcoming expenses, and how you actively manage your money (instead of letting it manage you)! Let them see how you make sacrifices. It’s good for them to know that you want things but you discipline yourself to wait and save money. Show them how you save for a rainy day and how you choose to give.
4- What debt is, how to deal with it, and avoid it
Debt is an aspect of finances that we might be inclined to hide from our children because we are embarrassed, ashamed, or in denial. However, letting kids know about debt, even if you don’t divulge all the details, will help the family to understand why some needs and wants may go unmet and why sacrifices are made.
Children will learn to be frugal for a purpose and get the satisfaction of working toward a goal. Working as a family to pay off debt can be a great opportunity to work together as a team and strengthen your family.
Our kids are pretty smart about debt because we were completely open with them when we were paying off six figures of student loan debt. They understand what interest is and why we were in a hurry to pay back our student loans. It’s very humbling to have your kids want to contribute toward the family goal to get out of debt.
But what if I’m not a good example?
You don’t have to be the best example to teach your children about finances. Kids are pretty amazing. They can learn from your good choices and bad choices. It’s actually good for kids to see that you aren’t perfect.
If you’ve made bad financial decisions, wouldn’t you rather have your kids not make the same mistakes? If they can learn the lesson from your experience, they can avoid the school of hard knocks.
Let’s stop making our personal finances so personal. Let’s give our children the leg up they need to be successful!
How about you?
- Did your parents share their finances with you?
- What do you/will you tell your kids about your finances?
- For those of you who no longer have young ones at home, what do you wish you had done differently? Let the rest of us learn from your mistakes!
This post was updated since its original publication in April 2016.
My parents rarely talked figures with us (although when my dad told me it cost him $24,000 per year to pay for our family’s health insurance I certainly never forgot it!) but they spent a lot of time talking about investments, the difference between credit and debit cards, and the importance of budgeting – even starting when we were 7 or 8. (My grandmother went so far as to explain and encourage me to attend and vote in shareholder meetings for stocks I had been gifted at that age!)
Even though my parents were financial comfortable, they always told us ‘we buy what we need, not what we want.’ They also talked a lot about the importance of paying for experiences versus things, which now seems to be a pretty common philosophy. I still live by it and I’m now in my 30s!
(Side note: I still remember a second grade student of mine proclaiming loudly that her dad was rich because he had $100. Knowing her family I knew they struggled, but it was interesting to see her interpretation of what $100 meant!)
Not having kids myself I’ve never really thought much about when to share specific figures. I was around 15 when my dad told me the real cost of our health insurance, and it certainly made me think a lot about budgeting and the real world, but I also immediately assumed he was rich if he could afford that (we definitely were not), which meant I felt we should be able to afford new shoes or a new top when I needed them! Not the lesson he wanted me to learn, but I eventually figured it out 🙂
It sounds like your parents were pretty money savvy and probably shared more with you than most, even without all the exact figures. That’s really interesting that the cost of health insurance stuck with you like that! Thanks for sharing Casey Ray! 🙂
My parents never discussed finances with us. Unfortunately, they believed it was not really our business. They were really careful with money, and we all went to Europe every summer. In retrospect, this would have been a wonderful teaching tool: I wish that they had explained by being frugal with certain things we could afford to do things that were truly important to my family. Sadly, I thought we were poor!
That sounds like it would have been a great opportunity to learn. I’m sure they had good intentions (maybe thinking that knowing they had money would make you feel entitled or something like that). That’s really neat that you traveled so much!
Really great ideas, especially for the younger age range which can be hard to find.
I have actually been looking around at parenting/finance books lately. Do you have any suggestions? I know Dave Ramsey wrote one.
I’m a financial literacy coach at a non profit..I use curriculum from the FDIC to teach my adult classes. The FDIC also has free curriculum for pre K – grade 12.
https://www.fdic.gov/consumers/consumer/moneysmart/young.html
Thank you! I’m going to check it out. I was planning to teach my kids (12, 9, 5) more about finances this summer and this will help me figure out where to start.
Perfect! The summer is a great time to teach finances! 🙂