Knowing how and when to start teaching kids about money and identifying which money skills they need can be tricky, but experts say it’s critical to their future.
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Knowing how and when to start teaching kids about money and figuring out what skills they need can be tricky.
Parents often don’t want their kids to worry and want them to be carefree – but being financially confident and literate is key to ensuring they have a happy, comfortable future. Ultimately, boosting your child’s financial confidence is critical, experts say.
Susan Hirshman, director of wealth management at Schwab Wealth Advisory, told CNBC Make It: “Having a good sense of financial responsibility is critical to being successful in life because money skills can influence important milestones like getting married, finding a job or buying a home.”
For example, employers might run credit checks to screen employees, she explained, and buying major items like a home can also be influenced by your money history. Forming good habits early on can help avoid any problems, Hershman says.
Other dangers kids can fall victim to if they don’t have a financial education include potential debt traps, such as “buy now, pay later,” said Seth Wunder, chief investment officer at Acorns.
Eric Landolt, head of family advisory and art and collections at UBS Global Wealth Management, goes a step further.
“Financial literacy should be an essential skill, an essential skill in the sense of reading, writing, or doing something, that should be taught to everyone in any situation,” he said. He added that money decisions could also have wider social impacts, depending on how money is spent and invested.
When to Teach Kids Money Skills
It’s clear how important a conversation about money really is. But when is the right time to start owning it? Experts disagree, but it could be much sooner than you think.
Wunder says six is the age at which children start to grasp some money concepts.
“Kids at this age are starting to understand maths in school and are able to appreciate the ‘give it or lose it’ consequences and save money for the things they really want,” he said.
By the time children are seven, many of their financial habits are already in place, he added, noting that children become aware of and curious about money much earlier than many parents expect.
Hershman recommends starting even earlier, between three and five. “This is when they are empowered to make choices and reason,” she says, adding that starting simple and gradually passing on parents’ own money values is ideal.
Landolt falls in between, saying that as early as age 5 is a good time to start because that’s when children are most receptive to messages from parents or grandparents about family values. He recommends teaching 5- to 8-year-olds “very, very basic things” like that money has value and how choices made with money can have consequences.
For 8- to 12-year-olds, the topics can be more complex, according to Landolt. “You can talk about different types or uses of money. So it could be saving or spending, some of those concepts, building versus investing.”
Landolt explained that as children become teenagers, between the ages of 12 and 15, they can take on more responsibilities, such as managing a small budget. That includes concepts like spending, saving, and understanding how decisions to spend money affect what’s left later, but goes deeper, he said. You can also start discussing financial decisions for the whole family, like supporting charitable projects or charities this age, and get their input, says Landolt.
Finally, 16- to 18-year-olds may learn about how the financial system and banks work, a topic Landolt says is often learned in schools as well.
Think about this when talking to your kids about money
Whenever you decide to start discussing money with your kids, experts recommend keeping the following points in mind.
According to Hirschman, the three most important things to remember are consistency, focus on action, and ongoing dialogue.
“You can have them make small, teachable mistakes so they can learn from them,” she said.
One way is to give them a stipend, she pointed out. Wunder agrees with the suggestion, explaining that it can teach children responsible budgeting, spending and saving.
Ensuring that conversations are age-appropriate is also key, he said.
“How you discuss this topic with a 6-year-old is going to be different than a teenager, but there’s a common theme in teaching kids the difference between needs and wants,” Wunder explains. .”
In the end, Hirshman believes that, as with many things, parental leadership by example can have a huge impact. “It’s important for parents to walk the talk and try not to send mixed messages,” she said.