Are you talking to your kid about money?
Like a lot of parents, I want my kid to be financially savvy, but I also know from experience that even smart kids don’t learn about money in a vacuum. You can’t make assumptions that kids are going to understand money, debt, credit, investing and all the other financial topics we expect adults to know if you don’t spend time talking to your kid about money.
Yes, kids are kids. You don’t necessarily want them to worry about your ability to retire comfortably while they’re still preoccupied with dolls and toy trucks, or even when they’re dreaming about their first car. But you do need to have enough discussion about money that your children grasp the basics so that by the time they are on their own, they understand the implications of getting their first credit card bills. taking on student loans, picking a marketable major, and pursuing internships and job opportunities with potential.
My 5 year old knows I blog. Sometimes this frustrates her. If I’m writing, I’m not doing important things like playing with dolls and baking cookies. My daughter wants my attention.
That said, Little Bit was immensely proud of herself when she found out that I had written a whole post about how much free games can cost. She thought of it as HER article, and she wanted to help out with another article. For a couple of days, she talked about “our next article” and what she would talk about on our blog. She was going to work WITH me, and that made her feel like important.
I told her I was going to interview her for the blog.
Money talk is all around our house, but outside of “Can I/We/You buy X?”, Little Bit rarely initiates the conversations.
And here she was, wanting to talk about money with me. It seemed like a great opportunity to find out what she thinks and what assumptions she’s making. Where does my child stand in her basic understanding of money? What can it be used for? How do you get it?
I gave her a little quiz, to find out whether I’m doing a good job of teaching her about money. My finding? I think I’m doing okay, but I have a lot more work to do before she goes off into the world and has to start learning financial lessons the hard way.
How 1 Conversation about Money Went
What is money for? Spending.
Why should you save money? So I can afford cool stuff.
What is cool stuff? (shrugs) If you could buy anything, what would you buy? A Barbie Dream House, so I can store all my dolls in there. You’d be happy about that, right? If they were in the dream house and not on the floor.
What else can you do with money? Donate it to new places, like church or koalas.
You’re going to donate money to koalas? To protect koalas, Mom.
Can you pay for food with money? Yes
Can you pay for electricity? Yes
Can you pay for hugs? Maybe
How do you get money? By saving my allowance.
How does Mommy get money? (shrugs.) By going to work.
Are credit cards money? Yes.
What are banks for? Getting money. Do you have to give them money before you get money? Yes.
Do you have to have money to use credit cards? (looks confused.) Credit cards aren’t money?
They are, but you have to have money in the bank to spend money on a credit card.
What’s interest? Money you get for not spending your money.
Changing gears, Little Bit had a question of her own: How many allowances does milk cost?
Little Bit gets $6 a week ($5 to spend, 50 cents to savings, 50 cents to giveaway), but thinks of her pocket money rather than her gross allowance. I answered “You get $5 a week to spend for allowance and a gallon of milk costs around $3.50. So a gallon of milk is a little less than an allowance.”
Cheezits? If they’re on sale, you can almost get two boxes for an allowance.
A Happy Meal? One allowance.
A Monster High Doll? Depends on the doll, but basically three allowances for just the doll.
A Monster High castle? 20 allowances or so?
A trip to the movies for all three of us? 4 allowances, if we don’t get snacks and go in the afternoon.
A bouncy house? A year’s worth of allowances
How much do you think we spend for electricity in a month? 20 allowances. (Dang, girl nailed it)
A week of groceries? 20 allowances. (That’s the goal.)
Gas for the car? Um, 10 allowances? (more like 6-7 right now, but that would have been a good guess a year ago.).
The Mom’s Perspective on what the 5 Year Old Knows
It was an interesting conversation, as long as you leave aside the fact that she blames the state of her room on the lack of a Barbie Dream House. Despite the fact that a lot of her answers were short and the concepts were pretty simple, my budding economist understands money pretty well for a five-year-old.
I’m pretty sure that Little Bit understands money is a medium of exchange for goods and services, that you get money by working and that money just might not buy everything. She even has a pretty good idea of how much things cost, and probably a much better idea of what food and electricity cost than I had when I was 5.
And that’s because I spend time talking to my kid about money much more concretely and specifically than my parents talked to me at 5, or probably even 10 or 12.
My parents separated and divorced when I was small. Whatever conversations they had about money among themselves before or after their split, I don’t think my brother and I heard very much. Whatever their thoughts about money, investing, saving, and debt, they didn’t share much until we were adults. We would occasionally be told something was too expensive, but not why. We knew how much we were getting to spend for allowances but had no idea of the costs to run a household for a week or a month or a year.
Money was just not a regular topic of discussion growing up.That’s Okay, I guess. We certainly had time to be kids, to explore the woods and neighborhood backyards, to think about books and games and sports and dreams. It was a good childhood, and I adore my dad and stepmother and miss my mom terribly.
But I struggled with money in my 20’s, and so did both my brothers. I wasn’t money savvy as a kid or a young adult because there was some essential knowledge about money that just wasn’t passed along effectively. That led to some hard lessons and missed opportunities.
I want better for my daughter, so she doesn’t end up like me and the 68% of young adults who screw up their credit before turning 30.
My mom built an interesting and diverse strategic investment portfolio that took her easily through her retirement and illness. I never talked investing with her, even as an adult, and I missed the chance to learn from her. I don’t want my daughter to miss those chances with me.
I want Little Bit to learn to save, to invest, not to rack up debt, to learn to work hard and smart to earn a good living.
My daughter needs to be money savvy. I know now she’s made a good start, but I know I still have work to do. I have to keep having these conversations about money, keep checking in to see what she knows, and not assume that because she’s a smart kid, she’ll figure out finances for herself.
I need to make her understand that the only way to be smart about your money is to think about it and work with it on a regular basis. And the only way she’ll learn to do that is if I make money a regular topic of discussion.
Talking to Your Kid About Money
The key to good parenting is good communication, and it’s important to talk to your kids about a wide range of topics to make sure you impart the lessons and values you need to pass along.
Make sure you are talking to your kid about values and beliefs. Make sure you are talking to your kid about relationships and friendships. Make sure you are talking to your kid about dreams and ambitions, and about everyday life and what’s going on at school.
But also make sure you are talking to your kid about money. Too many parents don’t make a point to talk about money, either because they think it’s embarrassing or taboo, or because they think their children are too young to understand or because they want to protect childhood.
Not talking to your kids about money doesn’t protect them. It keeps them from developing the tools and understanding the concepts that they’ll need later in life. Not talking about money may make your kids think your bad decisions are good ones that they should copy, or make them unaware of the good decisions you make.
Talk to your kid about money. You can start with general topics, but make sure as they age you start getting more specific about credit cards and student debt and the family income and expenses. Talk about salaries and job prospects, retirement savings and mortgages. Talk about building a budget and building an emergency fund. Talk about their dreams, and what they might cost.
Just make sure you’re talking.
Are you talking to your kid about money? What conversations have you had? What are the lines parents shouldn’t cross?