Tell the Whole Story

There’s a consensus that financial education should begin at home. But the way many parents cover the topic at the kitchen table needs a serious upgrade. Even now, parents talk more about sex with their children than they do about money.

In a 2014 study of 136 children aged 8 to 17, researchers found that while children reported their parents shared information on general topics like saving, spending and earning, children said their parents tended to stay quiet on sensitive topics like the family’s specific income and family debt. Often, parents fear causing their children anxiety or think talking about money is impolite. The problem is, keeping these secrets often caused more anxiety than telling the truth.

Children with wealthy parents, for instance, sometimes assumed their parents didn’t talk about how much money they made because they were poor—but the real reason was that the parents didn’t want the children to brag.

And the negative effects of that childhood anxiety can last into adulthood.  found that subjects who report limited communication with their parents about money later in life feel “clueless,” as if they don’t truly understand how credit cards or money management works.

Instead of concealing sensitive topics, you need to use financial discussions, no matter how sensitive, as “teachable moments.”

Trips to the store are good moments to have these conversations. Parents might explain why buying one item makes more sense from an economic perspective than another, comparing quality, price, benefits and the family’s general budget.

Don’t Make Money Scary

A group of Polish researchers came to similar conclusions about why people should speak frankly about money. Children, the researchers say, are quick to pick up on the symbolic value of money—all of the emotions it can stir and the associations it carries—even if they don’t understand how cash works. If parents don’t speak frankly about money, the researchers say, those associations pile up and lead children to act selfishly in the short term, and in the long term leave them with illusions about the power of money.

In their study, published in the Journal of Economic Psychology, the academics found that children who were focusing on money acted much more selfishly toward their peers. The researchers randomly divided 120 children aged between five and six into four groups. One group counted coins, one counted notes and the others various other objects. After doing so, the children were asked to help pick purple crayons out of a box of mixed-color crayons. The children who counted coins and notes were less willing to help with the task than those that had counted paper and buttons.

Over time, children who don’t get straight answers tend to think about money in purely symbolic terms, giving it more emotional weight than it deserves, he says. They may end up looking at the world through costs and benefits, rather than social rules of reciprocity. This can limit the ability to develop close relationships that would help people cope with problems in a way money cannot.

Further, if children continuously come to associate money with power, they might begin to see it as a solution to many problems, he says. They might come to see it as a way to cope with fears, attract new friends or increase their well being.

When should you begin training your kids about money?

Training, in our view, should start when kids are young — by early elementary school age when money habits are already being formed. 

We encourage parents to think of their kids childhood years as a money apprenticeship. From pre-school until high school graduation, with parental guidance, children have a chance to practice using money with little risk. 

And with responsibility for making independent money decisions (with plenty of room for making mistakes), children can learn that money is just a tool — something to be understood, continually learned about and used wisely.

You do not have to be an expert to teach kids money skills and habits. Just start the dialog now! Making money visible in the household will go a long way to helping your kids build foundational skills and knowledge to be independent adults (someday)

Why do parents hesitate to teach their kids money skills?

Parents tell us they want their children to grow up with the skills to handle money wisely — yet they often do not feel comfortable teaching children to manage money. 

Some parents feel they are not qualified, or that money is just not supposed to be discussed with kids. Other parents believe schools should be responsible for teaching kids about money. Others still tell us since they never had training and seem to be doing ok, so there is no need to teach their kids. 

We recommend parents take the time to teach children about money regardless of their income, their current knowledge level or how they were raised in order to fulfill on their wishes to see their children build money skills that can serve them throughout life.

Where do young kids learn about money anyway?

Pretty much everywhere — and especially at home! Young children learn about money by what they see, hear and experience in the world around them. They primarily learn about money by watching their parents use and talk about it. They are also keenly aware of how their parents feel about money by watching facial expressions, listening to word choices and tone of voice.

If you think about it, money is part of most of our daily conversations. We consider what we need (or want), if we need (or want) it now, go through the process of buying it or deciding to do it another day, embrace or bemoan a prior choice, plan for tomorrow, etc. As a consequence of the ever-present money conversations happening at home, kids are exposed to the ongoing successes, struggles and the unending money decisions of every day life.

How Much Money Do You Make?

Love this question!

So for those who have not yet gotten this question, some things to ponder:

• Younger kids probably don’t know the difference between $1,000 and $100,000, so you may be able to settle the issue by letting them know that you make enough for them not to need to worry about running out of money.
• For older kids, try explaining what it costs to keep the household up and running, which will at least give them a baseline number (you can explain taxes later). That begins to teach them about budgeting.
• The old-fashioned among you will tell kids that it’s none of their business. I don’t buy that. Kids worry about money, and shooing them away and telling them not to worry about it probably won’t put them at ease.
• And you should be aware that a wily teenager may be able to look up your salary online if you work for the government, a labor union or a nonprofit group. Kids can also dig up mortgage information or estimates on what your house is worth.

How have you handled this question with your kids? 

Broken Items – Accidents Do Happen

This week we got a great question from a reader: “What should we do if one of our kids breaks something?” We all know that with kids, things will get broken. It’s just a matter of time! So what is a parent to do? How should broken items be replaced, and who should pay for them?

It is possible, and valuable, to teach and inspire your kids to take responsibility when accidents happen. We’ve got some good ways for you to start the dialog before you are get into a meltdown over a broken item in a store — or at home.

When To Do

Some relaxed evening or a Saturday afternoon

What To Do

The key to this practice is advance preparation. Once you’re all prepared, you can use accidents as opportunities to (1) teach your kids that they can learn from and make amends for mistakes, (2) help them recognize the financial consequences of their actions, and (3) build their sense of personal responsibility.

Establishing the Family Rules

Each family should set up rules for broken items and who is responsible. Take time to think through the possibilities and get clear on your point of view — before something happens.
Here are some example rules:

• In our home, if anyone accidentally breaks something that belongs to someone else, the right thing to do is to make amends by offering to fix or replace the item.
• In our home, we will work to help whoever accidentally breaks something to be able to help pay for a replacement item. 

Practice/Dialog
Set up time to talk to your kids about accidents before they happen. To make it fun, consider playing the “What if?” game by asking your kids what they should do if they accidentally break something and how they’d do it.

1. Pull together a number of items in your home ranging in value from very inexpensive to very expensive. For example:
   • Milk glass
   • Kitchen chair
   • Front window (point it out, over there across the room)
   • Music player
   • Video game player
   • TV
2. Set the items on a table (if at all possible) for the review.
3. See if the kids can guess their approximate cost — it’s OK to tell them if they are too young to know.
4. “What if XXXX gets broken?” Discuss with them what they might pay for each of the items on the table, and how.

How Much to Pay?

1. You can negotiate with your kids on how much money would be reasonable for them to contribute to buy a new item they have broken.
2. For young kids, consider helping them to replace the item, so their fledgling efforts at money management are not overwhelmed by trying to replace costly items all by themselves.
3. Depending on the item, that could mean having them pay a percentage of the cost of the item (for example, if the item cost $10, you could ask your kid to pay 20% or $2), or your kid could pay one flat rate regardless of the cost.
4. Even paying a small portion of replacement cost can be a very valuable lesson for younger kids.

What You Will Need

• Items from around the home to practice “What if?”
• Websites or magazines to help kids determine the cost of items
• Patience

Talk About It

Do you kids think it is fair to have to pay for something they break? Do they know kids who already do this? Do they know other kids who do not have to — and if so, what do they think of those family rules? Does knowing they’ll need to pay something for broken items help to make them more careful?