People don’t like to talk about money. For some, it’s a taboo subject. But when you’re a kid, money is a fascinating topic. To help capitalize on that interest, we’ve put together five ways to talk to your adolescent, tween, or teen about money.
- Share Your Family Finances If you’re comfortable with it, share your family finances with your children. Show them your total household income, the total budget, and where the money goes every month. Be sure to focus on bills such as water, food, electricity, debt (car and home), as well as all of your family’s entertainment, and how much you put toward savings (for vacations, retirement, college, etc.). This can help them understand why it’s necessary for every family to make smart decisions with their money.
- Help Them Understand Wants versus Needs To make it easy, highlight how food and shelter are needs, but toys or designer clothing are wants. Additionally, illustrate wants versus needs at the grocery store, focusing on needs such as bread and other basics over the wants such as cookies, soda/pop, and more.
- Teach Them About Compound Interest There is magic in compound interest. As a person puts money into an interest-earning savings account, that money grows faster over time. To help them understand how important compound interest is, tell them that they only need to save $268,000 to build a $1 million savings account. Saving just $500 per month for 44.8 years at 5% APY could earn them $731,200 in interest. Now that’s magic.
- Don’t Say “We Can’t Afford It.” Instead, focus on your family budget and how you choose to spend your money. Explain that it is necessary for every family to prioritize their spending to save for the future. This can help empower your child and focus on the family rather than their personal wants.
- Teach Them About Saving, Spending, and Giving Anytime your child gets money (from a birthday or allowance), help them put part of it away to spend, save, and give. Some experts suggest allowing them to spend 40% of it, put 50% into savings, and give 10% to a charity. This can help build a strong commitment to personal savings over time, teach them how to spend wisely, and emphasize the importance of giving.