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Talking To Kids About Money Matters
  • A blog written with parents in mind

4 Basics + 5 Tips = Finance Smarty Pants

Many things are on your wish list for your kids when they grow up—loving relationships, career success, happiness, and more. No doubt that underlying those aspirations is the awareness that preparing your kids to achieve financial stability will go a long way toward helping those wishes come true.

The 2015 Parents, Kids, & Money Survey found that more kids are approaching their parents to discuss money issues—but parents say they could be doing more to teach their kids about money. If you are like most parents, however, you are uncertain when to start and what to say. Here are some tips for starting the conversation.

Early and Often

The best time to start is as soon as your kids begin to notice that buying things is a part of life. They will catch on very quickly, that paper bills and metal coins can be exchanged for things people want in stores. Talking to them frequently about money, and how it is used, helps them understand financial transactions.

When adults get cash out of a machine on a wall or buy something using a piece of plastic, kids can misinterpret what they see. They need to be taught that money comes out of an ATM only because deposits have been made into an account. Similarly, they need to learn that using a credit card means that a bill will arrive later and must be paid.

The Basics

What are the lessons that you want your kids to learn? A good place to begin is with the basics. First, you want your kids to know how to set a financial goal, whether it is as simple as only buying a video game once a month with part of their allowance or as long term as saving up to get a car when they turn 16.

Second, they should understand the trade-offs between spending and saving. If they impulsively buy a toy that catches their eye in the store today, they will have that much less money to put toward that new tech gadget they're saving for.

Third and fourth, they should learn about inflation and diversification. Inflation is the steady erosion of purchasing power, and diversification is a way of splitting how money is saved so that it has the best chance to grow. You can start at simple levels when they are young, talking about price increases at the store and explaining how money in a bank account, unlike money in a piggy bank, can earn interest.

Five Helpful Tips

Even when you know what to cover, it still may be difficult to find the right way to make sure you are reaching your kids at their level with information they will remember. The following are some tips to keep in mind:

Tip 1: Look for teachable moments. These can happen when you are standing in a store, opening bills that came in the mail, or clicking on a website to plan a family vacation. For example, when your grade-school daughter asks for her own credit card so she, too, can get things at the store for "free," show her the credit card bill that comes once a month and explain how you pay it out of your earnings.

Tip 2: Be concrete. When kids are told to "save money," this abstract idea may not resonate as well as parents would hope. Helping kids decide on a specific goal they'd like to reach provides a real-life incentive for saving money.

For example, if they want to get a new bicycle and are going to pay for half of it, help them set up a budget that covers how much it will cost, including tax, how much they can save each month if they don't spend their allowance on other things, and how many months it will take to pay their share of the bike.

Tip 3: Cover both mechanics and values. Kids will catch on to how cash works quickly, and with the right explanation even the world of credit cards and ATM machines will become familiar. However, parents also will want to teach their children values—how to weigh one decision against another when it comes to spending. Some families emphasize saving for the future, investing in education, or making travel plans to new places a priority.

Tip 4: Share the family finances. We have a strong cultural taboo against having our kids know our exact household income or burdening them with worries about a parent losing a job. But it is important for kids to understand the choices parents make and the limitations families face.

Tip 5: Keep it fun. If your kids roll their eyes when you begin to lecture—one more time—on financial responsibility, your messages probably won't stick. Instead, find ways to keep the conversations interesting at any child's age.

The Star Banks Adventure® online game is focused on smart planning and wise investing. Kids will solve puzzles, answer quiz questions, and use "power-ups" to triumph in this game. With the help of Odal, your very own alien guide, you must stop Overlord Zek, the evil mastermind bent on causing financial chaos. Use different star banks to save coins so that you can build space devices to travel to Polaria. This game has a financial education twist and will require some smart planning and wise investing. You'll have to work to stay ahead of inflation and spend wisely to reach your goals. The goal is to emerge at the end of the game as a Finance Smarty Pants.

Helping kids understand how to make good financial choices is a key role that parents can and should play. By addressing the four basics—setting financial goals, making smart spending choices, inflation, and diversification—and using the five tips above, parents can put their kids on the road to being successful adults. 

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