Challenging Conversations About Money: Talking With Your Children

Money is a topic that often evokes strong emotions and can be difficult to discuss, especially with children. However, teaching kids about money is one of the most important things parents can do to set them up for financial success in the future. By starting these conversations early, parents can help their children develop a healthy relationship with money and avoid the costly mistakes that often come with financial illiteracy.

The importance of teaching children about money cannot be overstated. According to Mary Kondro, a Senior Leader of the Estate Advice team at ATB Financial, "a lot of people had to learn about everyday finances as an adult, and that they struggled and made some costly mistakes before understanding it." This highlights the importance of early financial education in preventing costly mistakes and fostering better financial habits. Kondro further emphasizes that "long term saving, budgeting and credit is not something taught much in school," indicating that parents and guardians play a crucial role in shaping a child's financial perspective.

One of the most effective strategies for teaching children about budgeting and saving involves practical, hands-on activities that help them understand the value of money and the importance of financial planning. For younger children, using three jars—one for saving, one for spending, and one for donating—can help them understand the concept of budgeting by physically separating their money into different categories. This approach allows children to see and touch their money, making the concept of budgeting more tangible and understandable.

For slightly older children, introducing a bank account can be a valuable step. Kondro recommends, "I suggest getting your child a bank account sometime between the ages of six and nine. Then when they receive money as a gift, you can teach them how to split the money into three categories." This method can be further enhanced by using the 50/30/20 ratio, where a portion of the money goes into a piggy bank for fun stuff, another portion goes into a jar for things they might need, and the rest goes into the bank account as part of a long-term savings plan. This ratio helps children learn to balance immediate wants with long-term needs and savings.

For older children, more complex financial concepts can be introduced. Kondro suggests, "The money that’s in the piggy bank can be used to buy a toy, take to the corner store for candy or whatever else your kid is interested in at the time. Having their own money to spend will teach them quickly how much things cost, how to be more selective with their purchases and how to save for the larger items." This hands-on experience helps children understand the value of money and the importance of making informed financial decisions.

Another effective strategy is to let children handle money and make their own spending decisions. For example, creating a pretend store with items that have price tags and giving children some money to "spend" can help them understand the concept of spending money. Kondro notes, "When they’re between three and five, you can create activities to help them understand the concept of spending money. For example, you can create a pretend store with items that have price tags. Then, give your children some money to 'spend' in the store." This activity helps children learn about the value of a dollar and the importance of making smart financial decisions.

For older children, giving them a small amount of cash to spend or a gift card can help them learn how to do some math in the store to see how much they can or should spend on something. The act of paying for something at the cash register and receiving change can also be a learning experience for kids. Kondro observes, "I noticed with my own kids that if they are in a store using their own money, they don’t just throw everything they want in the basket. They pick and choose, start to put items back and learn very quickly that when the money's gone, it’s gone." This hands-on experience helps children learn how to keep track of what they’re spending, a skill that’s hard to have even as an adult in an era of tap and mobile pay.

In summary, the most effective strategies for teaching children about budgeting and saving involve using physical jars for younger children, introducing bank accounts for slightly older children, and letting children handle money and make their own spending decisions for older children. These strategies can be adapted for different age groups to ensure age-appropriate learning and to help children develop strong financial habits from an early age.

The financial education received in childhood significantly influences an individual's financial habits and decisions in adulthood. According to Mary Kondro, a Senior Leader of the Estate Advice team at ATB Financial, "a lot of people had to learn about everyday finances as an adult, and that they struggled and made some costly mistakes before understanding it." This highlights the importance of early financial education in preventing costly mistakes and fostering better financial habits. Kondro further emphasizes that "long term saving, budgeting and credit is not something taught much in school," indicating that parents and guardians play a crucial role in shaping a child's financial perspective.

The Aflatoun Child Social & Financial Education program, which covers over 100 countries and millions of children and adolescents, has shown that financial education can significantly improve children’s behaviors in regular saving, rational consumption, and social participation. This program's effectiveness was evaluated through a paired-design experiment, which found that the Aflatoun curriculum can significantly improve children’s financial behaviors. However, it also spotted unintended adverse negative effects in terms of children’s attitudes and personality development, suggesting that while financial education is beneficial, it must be implemented carefully to avoid negative impacts.

The study also found that financial education for children can achieve greater success in improving boys’ financial behaviors and in underdeveloped areas. This indicates that early financial literacy can have long-term benefits, such as better financial decision-making and improved financial stability in adulthood. By teaching children about the importance of money, savings, investment, and responsible financial decision-making, parents and educators can promote a sound financial base that positively influences their adult life.

In conclusion, early financial education can lead to better financial habits, improved decision-making, and long-term financial stability. It is essential for parents and educators to provide children with the necessary tools and knowledge to understand and manage money from an early age, as this can have a lasting positive impact on their financial well-being in adulthood. By starting these conversations early and using practical, hands-on activities, parents can help their children develop a healthy relationship with money and set them up for financial success in the future.