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Talking to your kids about money, it’s never too early to start

Studies have shown that talking financial matters with your children can help them avoid financial pitfalls in their future.  It really is almost never too early to start talking to your kids about the money.  And your modeling of responsible financial decision making is a great teaching tool.
At what age should we start talking to our kids about money?
It will depend on the interest of your children but generally by the time they are 5 – 7 years old they are old enough to grasp basic concepts like how much things cost, saving money to make a purchase and the difference between needs and wants. 
Talking about how much the items you buy in the grocery store, gifts that you buy and other everyday things that you do. You can also discuss when you are making choices, for example, you can say you want to buy new shoes but since you don’t need them, you are waiting so you don’t spend the money that you need for something else.
What are ways younger kids can experience financial decision making?
A great way to get kids experience with financial decision making is giving them money for birthdays or Christmas that they can use to go shopping. The important concept is to make them stay within their budget so they understand how far money goes and that you can’t spend over what you have. 
Another experiential idea is the “keep the change” exercise.  How this works is that you give them money for an activity that you know can cost way less than the amount of cash you have given them.  For example when going to get ice cream give them $10 and Tell them they can spend as much of the money as they want but they get to keep whatever change is left over.  This is a great way for them to learn that by spending less they can save more. 
Can allowances be a useful tool for older kids?
Allowances can be a great tool to develop early childhood financial decision making especially if the allowance is to be used by the kids for their everyday activities.  Probably as early as 8 or 9 allowances can become an effective tool for teaching financial habits.
As for an amount a good place to start if the allowance is just for extra spending money is to pay $3 per month for every year of age until they reach the age of 16.  Then they you might want to adjust the allowance and make them start paying for more of their needs from a larger allowance.
How can you make sure they are saving the right amount?
The easiest way is to set the allowance up as a monthly transfer to the child’s account with 10% going to a protected savings account and the remainder going to their general savings or checking account.  This is also when you can help them set up other savings goals if they want to save for a bigger expense.
How would you sum up the importance of teaching your kids about money?
Don’t let your kids wait until they are adults to have to make a financial decision on their own.  A lifetime of smart financial decisions starts with making your first smart financial choice. Let them start with easy decisions that have less dire consequences if they make the wrong choice.  

Posted: 4/8/2015 with 0 comments

Categories: Kids and Money, Money Matters

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