Teaching Your Children About Money

What you say – or don’t say – about money matters has a profound effect on how your kids will handle their finances later on. When it comes to teaching your children to save and invest, open and honest talks about money should begin at an early age. Here are some things to know before you get started.

Parents are the single most powerful influence in their children’s long-term financial lives.

With such influence, it seems logical parents would jump at the opportunity to teach solid life lessons about good money management. However, this isn’t always the case.

Many families grew up not talking about money, treating the subject as a very private affair, following the behaviors of their grandparents and parents. It may be uncomfortable for many people to bring up money because they were never taught how to talk about it themselves.

While speaking openly about money is not always easy for parents, the truth is parents are teaching their children about money every day.

Here are some tips on how to get started:

• Explain the concept of earning money. Talk about going to work and what the money you earn pays for.
• Respect money. Show how small amounts of change saved in a jar can add up to a large sum of money.
• Give your children an allowance. Think about tying their allowance to weekly chores, which may help instill the concept of earnings.
• Help set savings goals. Help your child figure out how long it will take to save for something he or she wants to buy.
• Match their savings. Give your child incentive and help increase their savings quicker.

Understanding the value of saving begins simply and grows over time. Saving may not have meaning for your child until your child sees what it can do - that you save up for things you want. Making the concepts of money and saving concrete for children is something parents have been doing for generations with piggy banks, jars, or savings accounts.

Today’s tech-savvy kids have a number of online tools and apps available to help them grasp these timeless concepts. These resources and countless others can help reinforce the basics of money management in fun and interactive ways. They also give tips on taking your child’s money management skills to the next level, including how to:

• Make spending decisions
• Open a savings account
• Get a credit card when it’s age-appropriate
• Invest in the market
• Give to charity

Helping your children understand the basics of saving is a great building block for introducing them when they are older to your financial institution and even to investing. Many banks and investment firms offer relationship pricing, which enables a young person to build up savings slowly in an account without some of the common minimum balance requirements.

Parents with larger household balances may be able to open a Uniform Transfer to Minors Act (UTMA) account for a child without certain fees. But if fees apply, you have to consider whether they will be excessive given what the child is able to save. Remember that money in an UTMA account belongs to the child and will ultimately be under his or her control at your state’s age of majority (typically 18). At that point, the child is legally able to use the money however he or she wishes.

Even young children can understand basic investing. If children can save up enough money to invest in a mutual fund or something they can understand, that will help teach them more about financial management and managing a larger amount of money.

Talking with children about investing and introducing them to the benefits of working with a financial advisor are important steps in helping prepare them for the future and have a stronger financial sense of responsibility.

• Take advantage of time as a family to teach your children about money.
• For very young children, talk about money basics in short, simple conversations.
• Use a variety of resources to help build your child’s money skills and knowledge.
• Help your child establish positive money habits by giving an allowance and showing ways he or she can save.
• Be a role model when it comes to handling money matters and having responsible conversations about money, spending, and saving.