Do you talk to your children about money and debt? Many parents never do. In fact, according to one survey, fewer than 40 percent of parents talk to their children about debt, credit cards, bills and money. Some parents might have good intentions, but many just don’t get around to teaching their children about money, or don’t know how to approach the subject. Others think kids don’t need to know about their parents’ finances.
While children do not need to be the household money managers, they learn how to plan for their financial futures primarily from watching what their parents do. Bringing children into the conversation about money can help make their financial futures stronger. Here are some suggestions on how to talk to kids about money — and how to teach them through your actions.
1) Model responsible choices.
Consider what your choices teach your children. If you overspend and then stress out about credit card bills, you are showing children that debt is a way of life. On the other hand, if you never mention bills, kids might think money just flows like magic. Talk through your choices with your children: “I really like this dress, but it costs $100, and I only have $70 in my wallet right now. Next week, I’ll have the full $100, so I will come back and see if it’s still here. That’s great, too, because I can be sure I still really want it.”
2) Stay focused on reality.
Kids spend a lot of time watching TV — about four hours a day from ages 6 to 11. About 71 percent of kids age 8 to 18 have a TV in their bedroom. But all this TV-watching could be harming kids’ future spending styles. Many TV programs showcase extravagant lifestyles — including parties, beach vacations, designer wardrobes, fancy cars and dining out — with never a bill in sight. You can help kids by pointing out the unrealistic aspects of these shows. You can also talk about the difference between people who flaunt their wealth and flash credit cards, and those who live life without extraordinary spending.
3) Don’t teach kids to go into debt.
Allow your children to have some spending money, but teach them the value of their cash. Do not let them constantly borrow from you to spend more than they have. That habit teaches them that their “income” is flexible and depends more upon what they want than what they can afford. Point out greater meaning to their behavior: “If you spend $10 eating out today, that might be fun. But if instead you eat the lunch we already have at home, you can afford that game or those sandals you’ve been wanting.”
4) Talk about your debt decisions.
Most people carry a credit card for travel or emergencies. Many people use a debit card to pay for everyday expenses, because it can be safer and more convenient than using cash. To children, however, these pieces of plastic can look like tickets to endless expenditures. Be sure to explain what you are doing when you spend: “This looks like a credit card, but it takes money right out of our bank account. That’s why I always write down what I spend in the checkbook (or check my balance online every day) to check how much money I have left. When it’s gone, we have no more money until my next paycheck.”
5) Tell kids about healthy debt vs. unhealthy debt.
Explain to them that costs like a mortgage or a car loan are big bills that keep you in debt until you pay them off: “We couldn’t afford to buy a house outright now, so the bank helped us. We pay it off a little bit every month, and by the time you get out of college, we’ll own the whole thing. The more of our own money we use each month to pay off that debt, the less interest we pay to the bank.”
6) Build a rainy-day fund.
Learning how to save is one of the most valuable gifts you can give a child. Teach them to save a portion of all their income, whether from allowances, gifts or income from a job. To motivate kids, have them save money in a bank account where they can watch the ledger amount grow. Or offer to pay them interest or match their savings. Encourage them to save for a large purchase themselves, rather than waiting for a holiday or begging grandparents to buy it. And again, model with your own behavior: “Boy, that car repair was expensive. Luckily, I’ve been saving money for an emergency, so I wasn’t worried about it at all, and now we’re back on the road!”
At first, it might feel awkward to talk about money with your children. But teaching them to manage is part of parents’ responsibility. Best of all, if you succeed, you’ll watch the kids reap the rewards of your lessons for the rest of their lives.