“Your first paycheck, and every one after that, is what you save part of in order to prepare for life after your last paycheck.”
In part one of this topic, I discussed why you should have the first of many “money talks” with your kid, busted some of the myths on why parents avoid it, and covered some of the risks if you avoided it. So when should you start talking to your kids about money? My advice is don’t wait too long.
When to start the conversation
Start explaining what money is at age two. Let them touch money (coins and cash), play games with money…then wash their hands because money is pretty filthy (physically, not conceptually).
Start giving your kids weekly money at age three, but don’t put it in a piggy bank and tell them they can never spend it. The piggy bank approach turns money into an abstract concept rather than a real-world tool. They won’t entirely understand this whole “money” thing at first, but it will give you the tangible opportunity to have regular conversations about saving, spending, and giving. It’s also a great way to encourage counting, addition and subtraction skills.
The issue of whether money should be given only for chores – a commission for work as Dave Ramsey would say – or simply as a financial learning tool isn’t clear cut in my view. We chose to implement it in multiple steps based on our son’s age.
In the past six months, I’ve had a few conversations with parents of young kids (8 and under), and none of them are actively teaching their kids about money, instead figuring they’ll do it “later”. According to this study by the UK’s Money Advice Service, basic money habits are formed in kids by age seven. By the time most parents think their kids are “ready”, the money habits are already formed. In these conversations I’ve had, some of the common reasons for avoiding “the money talk” among parents are have included:
The Myth: “My kids aren’t old enough to understand much about money yet.”
The Reality: There’s a great saying that goes “More is caught that taught”, and having been a parent for the past six years, I can vouch for the truth of it. Your kids are watching what you do, and learning from it. They’re watching you spend, and save (or not). They’re watching what you buy, and they’re listening to what you say about money in your home. If you’re having financial struggles, they may be watching you and your spouse fight about money. If you’re not purposefully explaining your actions regarding money, your kids are going to come up with their own interpretations of what money is all about. You’d be surprised what your kids have picked up about money along the way, but don’t leave their education half-finished.
Really interesting graphic.
Mexican $5 peso coin front
[Download high-res version, transparent PNG]