How to teach your kids about money

By May 19, 2017Blog

At times I get asked, “Paul, what gift would you recommend I get my daughter or son?”As a parent and financial advisor, I can’t help but relate that question to my life. Aside from love, what’s the most meaningful gift I can give my daughter? Well, knowing what I know about money and finances, and that the reality that financial problems and stress plague 7 in 10 individuals, my gift suggestion is to teach your kids and grandkids about money. Studies have shown that parents have the greatest influence on their children’s financial habits, and now, more than ever, mothers and fathers are taking the primary role in educating kids about healthy money management.

“Most financial experts agree there is a need for financial discussions among families to avoid or soften potential future economic upheavals,” says Suzanne Poole, Executive Vice President, Retail Sales Strategy, TD Bank. “According to a recent financial literacy poll by TD Bank, only 50% of families report having weekly conversations with their children about finances, even though there are easy ways to incorporate tips about money in everyday conversation.

They surveyed 1,637 consumers within the Northeast as well as in Florida and Washington D.C. With a little more than half of families having weekly conversations with their children about money matters, it’s important to keep it simple, be honest, and make it fun. Now, let the lessons begin:

Be Open: According to the survey, a majority of parents agree that honesty is the best policy when talking to children about household finances. Perhaps as a result of the recent economic struggles, the survey found that 55% of families say they are talking with their children more often about money.

“Talk with your kids about the state of the economy, and more importantly, be open about your family’s specific financial situation,” says Poole. “Children tend to learn through real-life experiences, and what better way to do so than by being informed about their family’s financial situation?”

Set Savings Goals: The survey also showed that teaching children to save with a piggy bank is one of the most popular money-related activities. That being said, only one in three parents reports setting a savings goal. If your children are saving, help them set goals and define the steps needed to reach them. Use a calculator and show them how much money they will have after a period of time if they save a certain amount every week or month. Then post a chart that shows the progress they’re making toward their goal.

Establish a family budget: Budgets are the most basic line of defense against unhealthy family finances and can be used to help explain to children the differences between needs and wants. According to a recent report from the Federal Reserve Bank of New York, better budgeting contributed to Americans paying off nearly $1 trillion in debt over the past two years. Despite the evidence that better budgeting can lead to saving, the survey shows that 47% of families are still not following or creating a monthly budget. Financial websites, such as Mint.com, offer free programs and budget templates to develop a financially fit family budget.

Enroll in financial literacy programs: Financial literacy can be a daunting task for parents, but there are educational tools and programs that can help with this process. All of them offer advice and resources for parents to teach children and teens about money, savings, and banking. Here is a great online resource: check this out.

If you’re a grandparent, and no longer have kids at home, consider passing this along to your adult children so you can be an influence in your grandchildren’s financial habits. The greatest gifts are the ones that will be of value throughout life. Remember, it doesn’t have to glitter to be gold.

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