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Not sure how to talk to your kids about money? Read below for a clear guide on having that conversation, both now and later.

When you are repairing your own money problems, it’s clear that early personal finance education helps you make better-informed choices—hindsight amiright?! In practice, the implication from this is simple enough. You should know how to talk to your kids about money at any age.

Many of us didn’t talk about money with our parents as kids and didn’t realize there was a problem with our spending until we reached a drowning point. Credit card offers and refinancing options are easy to come by, and debt is easy to hide. You assume your peers are in the same boat, because most people don’t share the details of their bank accounts with their friends.

How to Talk to Your Kids About Money - At any ageBut once you understand the price of maintaining that lifestyle, it doesn’t seem so glamorous. Or so smart. If you knew as a young adult what you know now about the benefits of compound interest and building wealth, you might have prioritized saving earlier.

Hopefully you and your spouse are having conversations regularly about your money. You know you need to talk with your kids about money so they are better prepared for their future, but it’s hard to know where to start.

If you and your partner have had arguments about money, it can seem awkward to bring the kids into it. How much do they really need to know? How young is too young? They might think it’s boring and tune you out.

There are lots of reasons to put it off.

The Hot Potato of Personal Finance

Sadly, parents cannot count on their kids learning about personal finance in the classroom. Academic subjects are useful. They teach critical thinking and broaden students’ knowledge of the world. But I would argue that all students will have to handle their personal finances later in life, regardless of what career path they chose, yet schools rarely cover budgeting, paying taxes, saving and investing.

According to a recent study of over 1000 millennials, 69% of those polled said they felt that high school did not provide them with enough knowledge to navigate the real-world.

For many students, 12th grade is not the end of their education. But consider that another 61% of those surveyed went on to graduate college with student loan debt. That means that before they stepped on a college campus, they had already committed to student loans, probably not knowing the burden of those debts after graduation.

A lot of parents feel uncomfortable with their own grasp on personal finance. They may be hesitant to “teach” their kids how to manage money, when they aren’t sure they know how to manage their own.

You don’t have to be a financial expert. Kids don’t need to know the ins and outs of the stock market. I suspect that if you are reading this right now, you know more than you are giving yourself credit for.

Protecting our kids: Step 1 is talking to your kids about money!

We tend to have strong emotions around money, and sometimes it feels like we are protecting our kids by avoiding the subject. But kids are sponges, and money is a part of everyday life. Even without your input, they are going to form their own thoughts about money. This will come from conversations they overhear or even the look on your face when they ask you to buy something. Your child sees when you are stressed about money.

Secrecy only confirms that money is taboo.

Often kids associate money with shame and anger before they even have any. If they see you clam up about money around them, they may assume that the situation is really dire. Or that they are a part of the problem.

While they don’t need to be burdened with the details of your money problems, they do need context. If things are hard right now, talk about the steps you are taking to fix the problem. Tell them about the new habits you are putting in place to control your spending. Tell them how saving will protect your family from having similar problems in the future.

Research shows that kids who had some financial discussions with their parents do better as adults. Even if the conversation comes from a tough situation, parents can show kids that it’s within everyone’s power to change their money story.

Start Simple

When kids are really small, talking about money is conceptual. They can help you come up with what the family might eat for dinner one week. You can make a grocery list together with the items you need.

If you are at the store and your daughter wants you to buy her a toy, you can tell her that you only have a certain amount of money to pay for everyone in the family. You might talk about how you go to work in exchange for a paycheck that you use to pay for your home and everything else.

When kids make their Christmas lists, have them prioritize their top wants.

Early enough, children will notice disparities. Some kids have nicer shoes than others or get more Christmas presents.  This can lead into a natural discussion about wants vs needs. You need a place to live. You want ice cream on the weekends.

Shoes might be a need, but do you need Nikes when you can still buy other shoes? Is a laptop a need? What if you use it for homework?

Let’s get to brainstorming…

Brainstorm the reasons we spend money. It’s fun to buy things that fall in on our “want” list. New clothes make us feel put together or having the same shoes makes us feel like part of a group. Talk to your kids about all the ways we can use money, not just on ourselves, but to help others. What other activities bring us joy and make us feel closer to our friends besides spending money…a kind gesture to a neighbor, spending time outside, mastering a skill.

Ask them what makes someone successful. (Pro tip: it’s not just money.) Let them know the difference between truly being wealthy and just looking like you have money. Concentrate on the things they can do to improve their chances of future success: working hard in school, finding a job that challenges you, and the importance of spending less than you earn.

If your preteen asks you a direct money question and you don’t know the answer, make it an opportunity to research together. When you talk to your kids about money, give them a chance to ask follow up questions. You’ll lose them if you get too deep before they are ready, and they aren’t likely to ask again if they think it will lead to a lecture.

Where Does It Come From, Where Did It Go

Parents often ask me about allowance. I don’t think kids should be regularly paid just because they live in your house. If their daily job is to feed the cat, that doesn’t warrant payment either. Family members chip in and help each other, and should not expect payment for doing their part. Parents already spend money on their children to cover their needs and, of course, a number of wants.

But I do support offering odd jobs for pay, separate from regular chores. Of course, this is going to look very different by age. A 5 year old can help fold some clothes for pocket change. A preteen can wash the car for a few dollars. The point is, these jobs are age appropriate, aren’t part of regular chores, and most importantly, the child only gets paid if they complete the job.

This arrangement gives kids some autonomy to earn extra money if they are willing to do the extra work. If they have their eye on a special purchase or are inspired to make more for whatever reason, you can suggest they expand their services to include mowing or babysitting for the neighbors. They have to arrange it; this is not another job for mom and dad. It could be as simple as putting flyers in mailboxes offering dog walking services.

When talking to your kids about money, make sure to cover spending vs. saving.

Money is a bigger incentive to some kids (and at some ages more) than others. It’s ok if your child isn’t looking for new opportunities to make money every weekend.

Whether your child has a desk drawer overflowing with cash or even a modest amount from a birthday, discuss what they are going to do with their money.

If your child is keeping wads of dollar bills in their room, it may be time to open a bank account. Preteens are old enough to understand the importance of a savings habit and a savings account is a great place to keep money they aren’t using right now. You can talk about compound interest and explain how some accounts pay you more when you have money you want to save for longer periods of time.

Talk about how you save money for big purchases.

This is a good time to explain how you save your own money for big purchases. You can tell them why relying on borrowed money is problematic, even if banks make it seem easy.

If they just need a place to hold their money, services like Greenlight offer a bank account with a debit card for your child while you maintain parental control. You can teach them a little about how a bank works.

But yes, it is their choice if they want to run to Target and blow a portion of their earned money on Pokemon cards right now. They will get the rush from buying, and then they might have a little bit of shoppers remorse when they see that their sister still has her money. It’s all part of the lesson.

Being able to earn a little money and then decide what to do with it builds anticipation and teaches patience. It gives kids confidence and reinforces the idea that payment goes hand in hand with effort.

Driving Age

When your child hits driving age, you have a new opening to talk to your kids about money. They suddenly have a vested interest in the process of buying a car, how insurance works, and the price of gas. This is a great time to dive into these topics more deeply. Tell them the true cost of a car, and why someone might choose a used car. You can tell them about Kelly blue book values and car facts. Explain how leasing a car is not the same as buying, and how a leased car is not yours to sell.

They need to know that insurance is higher for younger drivers because of the added risk, and how safe driving will make their rates lower. You can talk about how the driver’s role in an accident determines how insurance companies pay for damages and how it affects their rates. Tell them about the serious consequences—financial, legal and human—that happen when you drive recklessly or drunk.

Your teenager will already know a lot of this, and act like they’ve heard it all. Fill in the gaps anyway. A good way to test their knowledge without making them defensive is just to ask them questions, “Tell me what happens if someone rear ends the car while you are driving?”

After all, the first car they drive will likely be one they borrow from you.

Gainfully Employed

Now that your teenager is old enough to seek other employment (and may be able to drive themselves there). I worked from an early age just for the independence it afforded me. I could buy my own clothes, get my hair done, and save up for a car. It was also educational for me, and I learned a lot in those early jobs that shaped my work ethic.

Some kids have to work. I encourage every kid, if able, to work in their teen years. Aside from independence, it teaches life skills that will serve them in college and beyond. A job will not only hold them responsible to someone other than mom and dad. A job also allows them to flex their communication skills, conflict resolution and can even provide insight as to how a small business operates. Working forces you to collaborate with people you might otherwise never meet. On the job experiences will give them additional perspective and build self esteem as they transition to college and onward.

Building the foundation.

Work is an essential part of the foundation needed to reach financial security. The sooner a young person can develop the mindset that hard work, (savings) and wealth are interwoven, the sooner they start to understand how their choices impact their financial wellness. This is one of the biggest topics to cover, frankly, when learning how to talk to your kids about money.

Working on a payroll also gives an early insight to practical matters, like how taxes affect your bottom line paycheck. This will further shape their understanding about how much money you really need to bring home to pay for all those things they want. It should also lead to a  conversation about how taxes are withheld differently depending on the type of work you do, and what responsibilities the earner has for reporting them.

Planning Beyond High School

Talk to your teens early about career options. Working provides a first-hand view into what types of jobs are available for someone without a college degree. A college degree is not necessarily the answer to their dreams, but coming up with a plan for after high school is important. Although there are good jobs to be had without the 4 year degree, they still require a dedicated vision.

Knowing what your child envisions for for their future will help you both create a plan of action.

I’m sure this will come as a shock: most kids don’t know what they want to do with their lives when they reach the age of 18.

Help your child reach out to someone who works in a field they are considering, or research internships for a job they want to know more about.

You can share stories about how you started school pre-med and realized you hated biology. Or maybe you made a mid-life career change after years of accounting started to wear thin. The point is to start a conversation to get them excited about the many options. Life takes you all different directions, but you have to start working towards something to find your path.

How to talk to your kids about paying for college.

Even if you are nervous about how you will pay for college, include your child in discussing their options and the part they play. Grades and some tests, like the PSAT, are taken into consideration when scholarships are being awarded. Talk to your teen about borrowing for college and how student loans will follow them into adulthood. Explore other ways to lighten the cost.

Many students start at a community school and transfer to a four year college. They still graduate with the same diploma as their peers who paid for four years at one institution. Sometimes a technical degree is the better option. Or real estate school. Or the peace corps.

Having these discussions early means they won’t be blindsided when they are ready to apply to their favorite out-of-state, private college and it doesn’t match up with your budget. The earlier they understand the options and obstacles, the better they can position themselves for what comes next.

Nowhere to Hide

I still remember from my own college days the deluge of free credit card offers that flooded in. It all happened during orientation week alongside the campus welcome booths. Although I haven’t been on a college campus in a while, I hope this is not as in-your-face as it once was.

Of course, now kids are accosted by credit offers online and on their phones.

When talking to your kids about money, make sure they understand that while it’s not bad to use a credit card, it is not free money.

This might be the most important discussion you can have with your child. Your young adult needs to understand that debt will follow them around for years. Mismanaging money in your teens and 20’s will impact your credit score long after. This all important number can make it more expensive to borrow money when you want to buy a car or a home, and bad credit can even be visible to future employers.

Did you struggle with spending decisions at your kids’ age?

If you struggled with spending decisions you made at their age, it’s ok to tell them. We don’t want to admit to our kids that we messed up. Of course not! But avoiding talking about money with your kids can only set them up for the same mistakes. Your story will lend credibility to your advice.

Of course, there are so many other things you can talk to your kids about related to money—setting up your first 401K, money and future relationships, living with a roommate. Whatever you tell them, they will form most of their ideas from watching your actions. So practice what you preach.

If you could use a little help with the practice part, there’s a whole community of families working to improve their money moves over in the Money Detox Circle. It’s a free community, and we’d love to talk to you, wherever you are in your money journey.

Tammy Lally

Tammy Lally

I BELIEVE MONEY IS NOT YOUR WORTH. Tammy Lally is an author, speaker, and Certified Money Coach (CMC). She helps others master their finances by first conquering their emotions around money, then by creating a comprehensive financial plan. She brings decades of experience and endless love to her bulletproof process for money mastery. She is the author of the book Money Detox, and her TED talk on Money Shame has over 2 million views.

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