Money conversations to have with your kids at every age

As we ease into fall routines, we know that many of our blog readers have kids heading back to school. This can be an exciting and grounding time of year for families, especially after the craziness of summer travel, camps and activities. Often, fall is a good time to set functional habits and dive into learning. Just as children achieve academic milestones in school, they can also achieve milestones of financial literacy and habit formation. Many adults in our generation grew up without positive financial conversations, and we want to encourage our readers to break the cycle of negative reactions to money and broken relationships with wealth. We think one of the best places parents can start this change is through conversations with their kids.

It can be beneficial to engage your entire family in money conversations, which can begin at just about any age in childhood. However, it’s important to consider the content and approach to financial discussions at each age, to make sure what you share is appropriately matched with your child’s cognitive and emotional capabilities. This week’s blog is a summary of advice for back-to-school money conversations to start having with kids, broken down by age group, to ensure effective and positive interactions. Much of this post is synthesized from this article in Parents, and matched to developmental milestones published in Psychology research and on the CDC website. All children develop differently and on their own variations of these timelines, so your mileage may vary when using this advice! In general though, these heuristic suggestions should work for normally developing children.

Ages 0-2 years old

I know we said that money conversations can begin at almost any age, but this range is a bit too young :) Instead, we encourage parents to focus on themselves at this time. Think about how your budget and spending habits have changed since bringing a new child into the world, and how your financial priorities might have shifted as a result. The best thing you can do to prepare your child for a positive relationship with wealth at this age is to make sure you are building one for yourself!

Ages 2-3

Children this age are generally at the early stages of learning to follow directions, to differentiate between objects and their function during play, and are starting to learn new words and their meanings quickly (though not yet using those words in full sentences). This is not the age to introduce the idea of budgeting or anything too sophisticated, but instead to help your child understand the concept of money carrying a range of value and that it can be used to purchase items. You can introduce the differences between bills and coins, and set up make-believe shopping games where your child can learn to exchange money for prized goods like groceries, toys and clothing. Keep in mind that limiting the amount your child can “spend” or needs to make a decision about rationing is probably too complicated and advanced for this age group - focus on learning the mechanics of the exchange at this time, not any spending or saving strategies.

Ages 4-6

At this age, children begin to learn and retain knowledge about consistent rules. They are also more engaged with their peers and interested in being helpful during social interactions. They can also pay attention for up to 10 minutes at a time in a focused learning environment. This is a great age to introduce more complex concepts about the value of objects to children. At this age range, children can begin to grasp that some things are cheap and some are expensive. Something to avoid at this age is presenting black and white rules about purchasing (especially ones that you might violate later!), e.g., don’t shut down or devalidate interest in purchases of highly coveted goods like toys or clothing by saying “we don’t have any money!”. Instead, you can explain that you would need to save up for those items, or wait until it’s a good time to buy them (like when they go on sale). You can show them examples of sale tags or good deals and explain that prices can change depending on the time of year. Once again, children at this age won’t understand complex savings or budgeting strategies, but they can learn that the value of items fluctuates and that being patient can bring positive reward.

Ages 6-8

If you’ve spent the past two years instilling the ideas that “patience is a virtue” and “spending at the right time matters”, you can now begin to teach your children about saving and budgeting. This is a great age to have your kids begin earning an allowance, or to get financially rewarded for good behavior. 5-6 year olds can learn to do regular chores around the house, and building a monetary reward structure for those chores can be useful. Critically, providing financial rewards for academic performance is not a good idea, and can end up extinguishing students’ intrinsic reward system (their personal enjoyment and motivation for doing well) - it also hasn’t proved to make a meaningful impact on grades or test scores. By age 7, you can take your child to the bank and help them open a savings account where they can regularly deposit their allowance earnings. Together, you can make decisions about when to withdraw and spend some of the money. Finally, this can be a good time to introduce the idea that you want to save more than you spend, to anticipate and facilitate future fun (just make sure that future fun becomes tangible and real - not a frustrating fantasy or broken promise for your child).

Ages 9-12

This age group is considered “middle childhood” and now borders on teenage years. This age can be especially challenging for children, as it’s the time when they begin comparing themselves and their possessions to that of their peers. One of the best financial lessons you can teach your children at this age actually has nothing to do with money - and everything to do with your child’s self confidence and comfort in their own skin. Take on the mindset that not only are you proud of your child for their accomplishments, but encourage your child that they should be proud of themselves first and foremost. This age is filled with social pressure, risky situations, and is a critical window when your child will begin to develop an independent sense of what is right and wrong. Stick to habit formation that you reinforced and taught at earlier ages, and help your child scale up their responsibilities around the household and in their social/recreational lives. You can also begin to compare brands and prices vs. value, to revisit the idea of sale items and good deals, and to reinforce ideas around building a solid savings account. You and your child can even set goals together for both their savings and spending for the year, and you can help them achieve savings goals by letting them suggest special chores or even letting them assist in a garage sale or helping you list and price items in an online marketplace (obviously you’ll need to facilitate the buying interactions for safety).

Ages 13-16

The young teenage years are full of huge life milestones around money. This is the age when kids can get licensed and trained to babysit, can get their first service job, or can even start their own “small business” during the summer by creating art, offering labor skills, helping out in the neighborhood, etc.  It’s important to help your child feel autonomous in their savings and spending decisions at this age, as disagreement with your parental opinions and challenges towards your beliefs and rules become more likely. Once children understand how to save, budget, and earn money, believe it or not, you can also introduce the idea of investing at this age! While the intricacies of various investment strategies and risk tolerances may be lost on young teens (the brain’s frontal lobes are far from developed in these years, meaning that good/logical impulse control isn’t in the cards yet), they can learn about fluctuations in stock prices and take that into consideration over time. Once you explain the basics of the markets to your teen, you can pick individual stocks to follow for the week - either in the news or on your mobile phone stock apps - and pick a day to debrief about what you observed and learned about the price. 

Ages 16+

By age 16, your child should have plenty of opinions and experience with earning, saving, spending, and perhaps even investing their money (with assistance). This is a great time to introduce the idea of debit and credit cards. If your teen has demonstrated responsible behavior and control of their spending, you can even consider getting them a no-fee, low-limit credit card. Make sure your child has adequate savings or means to pay the card off each month, and monitor their ability to do so until they are trustworthy and reliable. By age 18, your teen takes the next step into adulthood! Hopefully they will be well equipped with a positive and practical view around wealth and finance by this age. 

Of course, the suggestions and strategies laid out here are clean and simple. Life on the other hand, is messy! Adjust these recommendations as needed, and don’t let your high expectations lead to frustration. Meeting your child where they are in their learning is critical to success, and as mentioned above, the best financial lesson you can teach your kids is to just be open, honest and confident in their discussions, questions and habits with their money.

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Madison Elliott is a UX Researcher at Google. Madison leads data engineering and usability at Mana Financial Life Design (FLD). Mana FLD provides comprehensive financial planning and investment management services to help clients grow and protect their wealth throughout life’s journey. Mana FLD specializes in advising ambitious professionals who seek financial knowledge and want to implement creative budgeting, savings, proactive planning and powerful investment strategies. Madison brings her combined background in cognitive science, computer science and clinical psychology with her professional UX design and engineering experience to optimize workflows at Mana FLD and improve people’s lives.