Talking to Kids About Money: How to Set Your Children Up for Success

family with kids smiling after shopping in grocery store, the mother looking at the receipt when talking to kids about money

As a parent, it's often tempting to give your child as much as you can--including material possessions. You don't want to stress your kids out with money problems, either. At the same time, you do want to give your kids a solid financial foundation that will help them grow increasingly responsible with money over time. Model responsible financial choices when you're with your kids. Discuss why you're choosing to make the decisions you make, based on the age of your child. As your child ages, they'll retain that foundation--often, even when they don't realize it. Here’s how talking to kids about money can set them up for success.

Explain why you choose to put money in savings each month (and how you choose how much to put back).

The first step in talking to kids about money is to explain the concept of saving. Explain how that money can add up over time. Just 10% of your income won't feel like much on an average paycheck, but it can make a big difference when the dishwasher breaks or you have an unexpected medical bill pop up. As your child gets older, give more concrete examples. You may want to show older children that, though a crisis has arisen, you are prepared for it because you had the ability to take that money from your savings account, rather than having to scramble to come up with the money for it.

Talk about how and when to borrow money.

Many young people, in particular, fall into a vicious financial cycle with payday loans. While payday loans allow quick access to needed money, they can also charge a great deal in interest. Other young adults may struggle with credit card debt. Talk to your child about how and when you decide to go into debt to make a purchase. Don't just discuss the importance of "living within your means." Instead, go beyond that to discuss how and when they should borrow money: when it might be time to purchase a home, how to decide what they can afford in terms of a car loan, and when it's acceptable to use a credit card.

Discuss setting a budget.

Even young children can understand that something just isn't in the budget if it's explained to them properly. For example, a child who struggles to understand why they can't have a box of every sugary cereal down the cereal can start to understand that there's only room in the budget for one box of cereal today. As your children get older, talk about it in more detail. What does your grocery budget really look like? How do you decide what to buy? Teaching them broad ideas like this is essential when talking to kids about money.

Walk your kids through the process of researching before a big purchase.

Before making a big purchase, it's critical to do a little research so that you can fully understand the best decision for your needs. It doesn't matter if you're buying a home or choosing an expensive piece of exercise equipment. Take advantage of the teaching opportunity! Tell your child how you do your research and how you decide whether or not you're going to make a specific purchase. Discuss the pros and cons of expensive--but often higher-quality--items versus less-expensive items, and how to decide when to make a specific purchase. This simple strategy can go a long way toward informing your child's future buying behaviors.

Let your kids see you exercise financial restraint.

It is super important to set a good example when talking to kids about money. As a parent, it's easy to forget to show your kids the purchases you aren't making. When they're little, they don't care that you decided not to pick up that book at the grocery store on impulse, or that you chose not to buy that new dress. As they get older, however, you shouldn't just show your kids the purchases you do make. Show them the ones you choose not to make--and explain why at the same time.

Talking to kids about money can be a challenge. With the right methods, however, you can make money a regular part of your conversations with your kids--and ultimately help set them up for financial success.