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Recipe For Financially Literate Kids: Talk Money Once A Week After Age 5

April 27th, 2016 Posted in Lifestyle

What topic makes you clam up in conversation with your kids? Surprisingly, 58% of parents reported being at least somewhat uncomfortable discussing finances with their children.

Things don’t bode well for kids if their parents don’t step up to the plate and start talking about money. This doesn’t mean divulging salary details to your brood, but parents should take advantage of teachable moments at least once a week to help their kids gain a strong financial footing. That’s according to Stuart Ritter, a CFP and senior financial planner at T. Rowe Price.

The firm’s new study surveyed more than 1,000 parents of kids aged 8-14. Only 33% of parents cleared the bar of discussing financial topics once a week or more.

There’s no doubt that kids will inevitably learn about money with or without parents’ help just as they do with other touchy topics like death and sex. For the most part though, it’s in their best interest to get the correct information at home. Fourty-four percent of kids surveyed report they talk about money with their friends “a lot.” Thirty-five say their parents are uncomfortable discussing money with them.

Ritter says opening up the dialogue signals to children they can approach their parents with any pressing money questions and concerns.

How young is too young?

Forty percent of the parents surveyed, all of whom have children between 8 and 14, say their kids are too young to talk about money and finances. They are wrong, according to Ritter’s philosophy.

Ritter was taken aback when swiping his credit card at the grocery checkout prompted his 6-year-old daughter to ask if she, too, could partake in plastic paying.

If you have a credit card, you just show it to them and you can have anything you want in the store, she rationalized with her financial planner father.

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“She was already coming to conclusions about what was going on. It was my responsibility as a parent to give her more context,” says Ritter.

When to start? Sooner than you think, probably around age 5. “As soon as they realize money can do things,” says Ritter. He realized it was time to start having money conversations with his daughter after their checkout chat.

Concepts as simple as the mechanics of money and earning money for hard work are good places to start with young children, says Ritter. Involving children in the process of prioritizing money is another way to encourage them to make positive financial choices. Some parents do this with allowances (80% of juvenile respondents say they get an allowance and 69% have to earn it), but it all depends on how your child learns, says Ritter. “You know your child best.”

“Help them reconcile the idea that not everybody can have everything,” says Ritter. Another family may go on an exotic vacation while your family drives a new car, he says. Kids will notice other people’s money choices so help put those into context.

Money On Their Minds

Opportunities to introduce kids to financial concepts arise every day and parents should be having mini-money conversations at least once a week. Says Ritter, “This is not a formal sit-down eye-rolling living room conversation that takes 6 hours. ” It won’t happen on its own, however. Parents need to be proactive.

Saving is not something children are able to naturally observe; 33% of kids say they don’t know if their parents set money aside for saving each month but they do know their parents should be saving.

Ninety-one percent of kids surveyed agree saving for emergencies is important. However, just as with adults, acknowledging something’s important is a far cry from effectively putting it into action. Show kids exactly how to ‘walk the walk’ so they don’t become adults who only know how to ‘talk the talk.’

Changing the language can help kids appreciate an emergency fund–call it the “Life Happens” fund or something kid-friendly and creative. Showtime’s ‘Shameless’ Gallaghers call theirs the ‘Squirrel fund’ and everyone over age 8 has to pitch in for winter expenses. (Just be sure to keep yours in the bank rather than the kitchen to protect your cash cushion.)

Another way to relate to kids is by sharing money missteps. Buyer’s remorse is not exclusive to adults. Kids know the pain of shelling out allowance only to soon tire of the latest toy or gadget. Reflect together on mistakes you’ve both made and learn from that process.

Encouraging older children to add personal finance courses to their class schedule is a good way to help them be accountable for their own learning. (For more resources on how to start the conversation go here.)

Contextualizing College

The most important financial decision anyone under-18 makes is, of course, college tuition. The price of higher-education is more money than most 16-year-olds can wrap their heads around.

Growing up during what many have coined the student-debt crisis, young people are understandably debt-averse. Seventy-eight percent of kids surveyed would attend a cheaper college to avoid loans.

Perhaps the alarming headlines and trending stories of saddling student debt have done more harm than good to the generation growing up in the so-called crisis.

“The concept of college has become this big giant idea in their head, this colossal overwhelming expense,” says Ritter. He says today’s teenagers even so far as see college as a binary option: a college that costs a quarter of a million dollars by the time you’re done or no college at all.

In reality, there are many different price points, including community college and part-time curriculum on the lower-end of the spectrum. “The latest data shows that 1 out of 3 kids graduate from college with no debt,” says Ritter. “That story often gets lost.”

College is a value judgement that will be easier if kids are familiar with making financial decisions based on their greater priorities. If $50K a year isn’t worth it to your family, that doesn’t rule out college entirely. Consider public state universities or something more local like community college. The average cost of yearly tuition and fees for public four-year college is $9,139, compared to a whopping $31,231 for its private counterpart, according to The College Board. Help your prospective college student identify what they want out of college and how different options align with their goals. (See Forbes Best Value Colleges list).

Parents should open the discussion about the cost of college and accompanying budgeting topics far before their child takes the SAT and pens college essays. Encouraging new drivers to yield on the quality of their first car or the luxuriousness of their Spring Break trip, for instance, can help them prioritize and save more for college.

The thrill of admission makes it easy to skip the value judgement part of enrolling in a college, but it’s a crucial step for your wallet and your child’s future. If you’ve done your job of discussing money early and often, they’ll already know what opportunity cost is, so outline specific trade-offs involved while making the college decision together. For instance, attending a cheaper college may allow more financial freedom to attend graduate school or study abroad.

Any parent knows you can’t choose your kid’s priorities, but teaching them to align their finances to fit their goals is a gift any parent can afford.


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