Everyone wants their children to grow up to be financially independent. But when should you begin talking to your children about money?
The time to start learning financial lessons is the earlier, the better. When your son or daughter asks for a new toy or device, it is a great time to talk about the value of a dollar. It might seem easy to have these types of conversations with children, but research suggests otherwise: Forty-seven percent of parents report they often miss opportunities to talk about money with their children.
Parents devote so much time teaching their children about moral values (being kind, showing respect, practicing patience, etc.), they often neglect to pass on hard-earned knowledge about finances. How many of us wish we had learned more about money from our parents growing up? The financial wisdom that comes with age and experience is invaluable.
A great place to start is to talk about the importance of saving. Developing the habit early in life will lead to more financial flexibility once adulthood arrives. A lesson about how savings can grow in the form of interest earned would be a tremendous first step. Once your children start earning money — either from an allowance in their younger years or through a part-time job in high school — encourage them to save as much as possible. A saving habit of ten percent is a good starting figure, but up to 30% is even better. You can promote savings by contributing to or matching their funds if they reach agreed-upon thresholds.
Along the way, have conversations that affirm why saving aggressively has been important and beneficial to you. Real-life anecdotes and accomplishments are powerful. Perhaps saving money helped you pay for college or allowed you to purchase a home earlier in life than most of your peers. You can explain how a percentage of savings gets allocated toward the annual family summer vacation or remember a time when having a safety net helped you through a tough time. Those real-life stories and context will help magnify the value of saving as much as possible.
Once the virtue of saving is taught and understood, it is wise to discuss budgeting. Many household finances have collapsed under the weight of unnecessary purchases and shortsighted planning. When you teach your children to write a budget with line items, it helps them see exactly where their money is going and what their priorities should be. This will be a wonderful lesson when your children become adults and start their professional careers. Spending what you earn — and no more — leads to less financial stress and more enjoyment.
Be open with your children about your budget and explain why it is constructed the way it is. To take it a step further, have them help out with shopping on a budget. This is a great way to break down the difference between needs and wants, not to mention how preparation (e.g. coupon clipping, buying generic brands, online comparison shopping) can result in big price differences at the checkout register.
The discussions you have with your children about money will help set a strong financial foundation for them, which is a gift that lasts a lifetime. Set a good example by being open and honest about all things money — the difficulties, the dangers of debt, the intoxicating indulgence of overspending, the benefits of charitable giving, etc. — and teach by following your own advice. Set a budget and follow it. Aspire to save more than you need. Do not overspend on inessential items. Be the financial role model they can aspire to become.
Teaching your children about money starts with a conversation, and the time to have it is probably now.
This article does not constitute legal, accounting or other professional advice. Although the information contained herein is intended to be accurate, Cathay Bank does not assume liability for loss or damage due to reliance on such information.