At Alexis Advisors, we believe in being informed about your money, even if you’re a kid. Especially if you’re a kid: research has shown that children’s money habits are formed by age seven. Yes, seven—the age when most parents are struggling to get their kid to eat broccoli, let alone understand the ins and outs of personal finance!
It sounds surprising at first, but it starts to make sense when you think about how much kids learn by observation and imitation. This is why parents are the number one influencer of their kids’ financial behavior.
Hearing this may trigger a panic moment for parents who don’t feel that they know enough about money to be a good role model for their kids. However, author Beth Kobliner argues that this isn’t the case in her new bestseller, Make Your Kid A Money Genius (Even If You’re Not.)
The title more or less says it all. Any parent, financial guru or not, has the capacity to teach kids about money, because there are only a handful of concepts that really matter. And yet, it’s something we all struggle to talk about, even while we teach our kids other topics head-on, like the birds and the bees and the dangers of drugs.
To help you get started having those “teachable moments” with your child, here are the six top strategies that we gleaned from reading Kobliner’s book:
1. Start early. One research study found that children as young as three can grasp very basic economic ideas such as value and exchange. It also found that they can delay gratification, which is a behavioral precursor to being good savers and avoiding debt later in life. Toddlers are eager to help push buttons at the ATM, to look through your wallet, and to imitate swiping a pretend credit card. Instead of just chuckling at these moments, Kobliner says to use them as an opportunity to talk to your toddler about what money is and where it comes from.
2. Be straightforward (to a point). One of the most basic rules when teaching children about money is not to lie to them. Fibbing about how much money you have on hand is something nearly all parents have done at some point to avoid tantrums at the checkout line. However, kids don’t believe your excuses. Instead, Kobliner says, “straight talk is a good example to set, and if there are real reasons behind your decisions, it’s actually helpful to share them with your child.”
This doesn’t mean that honesty is always the best policy. Kobliner says to pick and choose which of your past financial sins you disclose. Other things to keep private include your salary and how much is in your 401(K), until your child is old enough to understand the context of what things cost and why you shouldn’t tap into your retirement savings now.
3. Think about “wants versus needs”. Understanding the concept of “wants versus needs” is not always easy for children, though it happens to be the foundation of making wise spending choices. Kobliner suggests using the grocery store as a teachable moment by turning it into a game: when walking down the aisles, you and your child can ask each other, want or need? “Needs go in the cart. Wants stay on the shelf—except, perhaps, for one or two.” This game can become more nuanced as your child starts to understand and becomes older, perhaps serving as a segue into conversations about saving up for wants and needs in the future.
4. Use anecdotes and numbers when having money conversations. Children tend to tune out when we go into lecture mode. So, to help grab their attention and get the point across, stories and numbers are the way to go. The anecdotes can help illustrate a point, be it positive or negative. The same goes for numbers: instead of a general “it’s important to put money into your 401(K),” try offering an example. “If you put $315 every month into a 401(K) starting at age 22, by the time you reach age 65, you could have more than a million dollars.”
5. Raise a generous child. We all know that money can’t buy happiness, but it can sure help—especially by giving it away to charitable causes. Kobliner cites a study that found children can also experience the joy of giving, which will resonate with caretakers who have seen their own children delight in sharing a snack or favorite toy with others. Parents can harness this instinct in a variety of ways. One is setting up a “sharing jar” alongside jars for saving and spending. Parents can even offer a matching plan for each dollar their child contributes to help motivate them. Another important lesson is that donating time by way of volunteering is valuable too.
6. Be a role model. If you have some bad money habits, do your best not to flaunt them in front of your children. “Trying your best to get your own financial life in order sends a powerful message,” Kobliner says. But remember that your money behaviors aren’t just the obvious ones of how and when your spend money. If you have money fights with your partner, keep them behind closed doors. It’s also important to share the talking: Kobliner says that she’s seen countless women pull the “ask your father” routine whenever money comes up, which sends the message that money is a man’s turf. But it’s everyone’s business to be an active participant in the money talk with your kids.
Want an easy way to demonstrate being intentional, equal participants in the money department? Bring your children along with you to meetings with your financial advisor. Since our inception, Alexis Advisors has encouraged parents to bring their children to planning and investment review meetings, regardless of their ages. They don’t even have to be paying attention—by just sitting in the corner with a coloring book or smartphone, they’ll get the message that both parents are involved and consciously planning to meet their financial goals.
Take a look at our video interview of a few teenagers to see how role modeling has made a huge impact on these kids, and what money means to them.
Want to learn more about teaching kids about money?
You can order Kobliner’s book online, or shoot us an email if you’d like to borrow our copy.
Here are some resources, activities, and conversation starters for parents to use with kids in early, middle, and late childhood.
Source: Kobliner, Beth. Make Your Kid A Money Genius (Even If You’re Not.) New York: Simon & Schuster, 2017.