Discussing Finances with your Children – Young Age

Discussing Finances with your Children – Young Age

If you have a child, you may have wondered when and how you should approach financial conversations. While every family’s financial situation is vastly different, certain topics will be relevant no matter your income or net worth. As a parent, you are likely the most influential person in your child’s life. Starting these discussions at a young age can set up your child for sound decision making that will last for years to come.

One of the easiest ways you can start discussing finances with your child is by giving them a weekly allowance. When a child has an allowance, they are more likely to take ownership of their purchasing decisions. Rather than simply coming home from the store with a new toy or video game, you can shift some of the control to them. You can still spend the same amount of money as you normally would on your child, but it will be up to them what they want to spend their weekly allowance on. This is a great way to introduce the principle of opportunity cost in a way that’s easy for your child to understand.

During this stage, discuss your child’s decisions. You can ask them what prompted certain purchases. Your child will earn first-hand experience with spending power, and will likely notice how quickly money runs out if they don’t make responsible decisions. While it’s important that your child has a degree of autonomy with their allowance, it is also imperative that you still maintain close supervision. When your child asks for input, and especially when you are offering your opinion without them asking, try to refrain from sounding critical or argumentative. The goal is to challenge your child to think through small financial choices in order to prepare them to make sound financial decisions as they grow up, when the consequences and dollar amounts are much greater. Here are a few examples of conversations you may want to initiate based on how they are spending their allowance:

Ex. 1: “It’s ok with me if you’d like to buy these new movies, but for the same price you could buy a new bike or scooter. Have you considered which one you might get more use out of?”

Ex. 2: ““I think this new bike you’re looking at would be a great idea. However, you already have a bike, and you’ve been talking about wanting that new video game that comes out next week. If you spend your money on this bike, have you considered where you’ll get the money to buy that new video game? Are you willing to postpone that video game purchase until you’ve saved up more money, or would you rather put your allowance toward the game and continue using the bike you already have?”

Conversations like the above can help prompt deeper thinking about things your child knows they want to spend money on, but may not be in front of them at the moment. By making suggestions like these, your child can start to weigh impulse spending that provides instant gratification, versus well-reasoned financial choices where they may not see immediate results. When you explain the benefits of saving at a young age, they will be more prepared as a young adult to be responsible once they’re earning an income of their own. No matter what you advise your child on, remind them that these financial decisions are ultimately up to them within reason. While you want to encourage decision making, you still may need to intervene if your child is considering making a choice to his or her detriment.

Starting financial discussions early can create a solid foundation for a lifetime of monetary wisdom. This blog post is the first in a series dedicated to having financial conversations with your child. We encourage you to check back over the next few weeks as we explore how to ramp up the complexity of these financial discussions.