Discussing Finances with Your Children: Part 2
Discussing Finances with your Children: Part 2
As your child grows up, it’s important that you have more complex conversations with them about finances. If you start advising your child from a young age, they will be better prepared to make wise decisions in the future. So far, we’ve covered how to discuss finances with very young children. As they grow older, you can gradually introduce them to more advanced money management concepts. While every child is different, these topics are mostly appropriate for children 8-13.
Discussing finances in broad terms builds a foundation for more advanced topics later on. Your child will already have a very basic understanding of money from their allowance as discussed in our previous post. With a solid foundation, it will be easy to begin incorporating other financial topics. While you may be hesitant to mention sensitive financial information, you can choose which details to reveal now, and which to withhold until your child is older. You do not need to mention specific dollar amounts to pass along valuable financial advice. In fact, it can be beneficial to avoid mentioning hard numbers. By speaking in general terms, your child will learn the broad concepts that can be applicable at any income level or stage of life.
Start building on their existing knowledge by explaining to your child how you make your own financial decisions.
If you are particularly passionate about a cause and regularly donate to an organization, explain to your child that process. You can say why the charity is important to you, and how your contributions have an impact. Let’s say you regularly donate to the Red Cross. Here are some of the talking points you may want to touch on:
“We like to donate to the Red Cross because we’ve seen the work they do in our own community. They help individuals and families affected by disasters, and the majority of the work they do is all with the help of volunteers. In order to help people in need, the Red Cross collects donations. We are proud to make contributions because we trust them to take that money and do practical things that make an impact.”
The topic of charitable giving can also progress into the topic of socioeconomic status. Don’t be surprised if your child has already picked up on a general idea of how your family’s income compares to what they’ve seen among their peers or even in the media. Regardless of your socioeconomic background, this provides you with a great opportunity to teach your children that money isn’t everything, and successful lives are not defined solely by socioeconomic status.
Another topic you can address with this strategy is the concept of spending on physical goods versus experiences. This can be a challenging topic to bring up with very young children. However, older children are more likely to grasp the idea. You can explain to your child that spending quality time on a trip with them is important to you, and that’s why you chose to spend your money on a vacation instead of something else you may want. To further their understanding, provide a few examples of the other ways you considered using the money, such as upgrading your car, remodeling the kitchen, or even saving for retirement. The following example focuses on a summer vacation, but the same conversation could be altered to fit a variety of circumstances:
“We decided to go on a cruise this year for summer vacation because we want to create lasting memories as a family. Even though we love buying new clothes and things for the house, we also love traveling and trying new things. We thought this would be fun for everyone, and we are excited to experience the cruise with you.”
Every family has different priorities when it comes to how they choose to spend. As your child grows, you can gradually offer more insight into how you budget your money. By doing so, your child will start learning to make better financial decisions in their own life when it comes to how they spend their money. As your child approaches their late teen years and adulthood, you can start having even more advanced conversations about finances. We’ll be addressing some of those topics in an upcoming blog post.
For advice on how to speak with younger children about finances, read our previous post in this series.