How Should Parents Talk To Their Kids About Money?

In this day and age, do parents have an obligation to teach their kids about money? I obviously think the answer is yes; however, since I’m a personal finance blogger, I’d say I’m a little biased. I understand that the topic of money has been, and still is in some circles, a taboo subject that should be avoided in conversation. My own family subscribed to this line of thinking when I was a child.

Mr. MMM’s family talked about money, but had a different style than my family. Unfortunately, the conversations they had with their kids about money created deep anxieties that persist until this day.

I’d never neither one of our families deserve any awards to financial literacy or education, so, let’s examine various strategies that can be implemented to talk to kids about money. Then, let’s take a look at the style in which our families talked us about money and how that has served us throughout our lives.

Strategies To Talk To Your Kids About Money

 

Obviously, talking to your kids about money is going to need to be adjusted based on the age of your kids. Smaller children aren’t going to understand compound interest or dollar cost averaging in the way older children will.

Strategies for talking to your kids about money:

  • Make sure you create a safe environment before discussing the topic.
  • Explain the importance of earning, saving, and investing, and how it will relate to them throughout various stages of their lives.
  • Allow them to see the family finances and monthly expenses. For younger children, teach them that turning on a light or heating the house actually costs mom and dad money every month.
  • Use a game like Monopoly to teach them what it’s like to have a monthly income and what it’s like to use that money for necessities like rent, electricity, food, transportation, etc. When they see how little they have leftover, they will start to understand just how much money it costs to run a household.
  • Have your younger children engage in chores, over and above what is expected of them as being part of the household, and pay them for their work.
  • Explain the difference between earned income and passive income.
  • Explain what taxes are and how much is taken out of earned income versus passive income.
  • Talk to them about their most valuable asset: Time. Tell them that investing smaller amounts when they’re younger will yield higher profits than investing larger amounts when they’re older.
  • Younger children can learn about investing by tweaking the explanation. We explain investing to our 7-year old by calling it “buying companies”. She gets that.
  • The possibilities are endless…

Related: Life Lesson: How A Mantis Saved Us Money And Enriched Our Lives

How My Parents Talked To Me About Money

 

Family horseback riding

Staycation Horseback Riding – kids and money

Unfortunately, I didn’t have the luxury of being taught about money or money management as it has been outlined above. Instead, I had parents that didn’t understand much about money. They weren’t able to differentiate between earned income and passive income, nor were they able to teach me anything about investing because they didn’t know anything about it themselves.

For all intents and purposes, my parents were Old School. They always taught me that money was taboo and shouldn’t be discussed. I was told I should never talk to anyone about their finances because it’s rude and it’s private. Now, in some situations that is true. However, my mom and dad were making a huge blanket statement.

As I got older, I remember my mom telling things like, “Make sure you always have your own money” and “Never depend on anyone else to support you.” Believe it or not, I took those throw away statements and tucked them away in the back of my head. I actually incorporated them into who I intended to be when I grew up. It was probably the best financial advice I ever received from my parents.

I can’t remember exactly when I became enamored with personal finance and educating myself about earning and investing, but I do remember being quite young. It was probably one of those things that I felt was forbidden – so I went after it with fervor.

Related: Kids And Cash: Grasshopper Teachings

How Mr. MMM’s Parents Talked To Him About Money

 

Mr. MMM’s parents were a different breed compared to mine. They were all about earning money, embarking on entrepreneurial endeavors, and living completely debt free. Even with all of that under their financial belt, they still weren’t savvy in the way of investing or building massive wealth. They lived an extremely frugal lifestyle and payed off all their debt. Full stop.

Although this awesome behavior was modeled for Mr. MMM (and it did wear off, by the way), he didn’t get much more instruction than I did. His instruction came more in the form of dinner time talk that went something like this, “What are you going to do about a job? You’re going to be 16 soon and if you think for one second we’re going to be paying for car insurance, you have another thing coming!” Oh, did I mention he was 14-years old when conversations like this started? Yeah.

Because of this abrasive style, Mr. MMM developed a fear of money and an anxiety of never having enough. Even till this day, when we sit down to discuss finances, it’s anxiety-producing for him. You’d never think that the other half of a personal finance blog would have money anxieties – but he does. Fortunately, we’re killing it when it comes to our finances – but it wasn’t always this way. Hopefully his fears will subside as we get closer and closer to our FI goals.

How We Talk To Our Daughter About Money

 

Mad Money Cat

Mad Money Cat gives presentations on investing. #catforhire

These days, we have a little girl of our own. We’re doing our best to make sure she understands the importance of earning, saving, and investing money at a young age. Our commitment to her is that she will not feel anxiety when the topic of money comes up, and that she will know exactly how to handle her finances for routine expenses, long-term investing, and a little fun here and there.

Related: What We’re Teaching Our Little Girl About Money

We talk to her so often about money that it has become commonplace conversation. She has even started to freely give her opinion when we are embarking on a household financial decision. The best was when we were debating whether or not to buy a new area carpet for under our dining table. Her two cents went something like this, “Why don’t you just clean the one we have and save the money?” Wow. We were schooled. And, that’s exactly what we did. It lasted another year before we had to replace it. But, the fact that we took her seriously and she saw us enact it and save the money (hopefully) made a big impact on her.

So, let’s hear it! How do you guys think parents should talk to their kids about money? What do you think is the best approach?

4 comments… add one
  • Jim @ Route To Retire Apr 20, 2017, 11:00 am

    I love reading your posts… our family is very similar to yours in the things you write about. 🙂

    Our daughter (who is about a year younger than yours) is being raised the same way. We talk about money openly and let her weigh in on things – sometimes it’s hard not to laugh at what she comes up with, but a lot of times she has some great thoughts to show she’s on track.

    Hopefully, we’ll have a a couple of financially savvy girls between our families when all is said and done! 🙂

    — Jim

    • Mad Money Monster Apr 20, 2017, 11:02 am

      Amen to that! I often to say my little girl…’If I do one thing right with you, you’re going to know how to manage money and build wealth.’ Haha…probably quite different from how other parents think 🙂

  • Shay Hass Apr 19, 2017, 11:23 am

    Love it! I talk about money all the time, but I don’t think my kids listen. When I talk about money around my kids’ friends, they hang on every word!
    I want my high schooler to know we don’t want to go into debt for college, but also don’t want her to be afraid to apply because I know their are grants and scholarships that CAN make it affordable. I’m afraid I’ve already scared her with my sticker shock.

    • Mad Money Monster Apr 19, 2017, 4:41 pm

      Being open and talking about money, in my opinion, is the best way to raise fiscally responsible kids who eventually turn into adults. I love that your kids’ friends hang on your every word! I hope that’s the case when my little one gets older 🙂

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