When is it a good time to talk to kids about money and finances?

When is it a good time to have “the talk” with your kids? Early and often, if you are referring to money and finances.

It's beneficial to have conversations early with children about money, budgeting, expenses and finances.
It's beneficial to have conversations early with children about money, budgeting, expenses and finances.

Youth today might know what a credit card is, the price of the new PlayStation or a pair of Air Jordan’s, but have no clue what basic utilities run. They may not be aware of how much it is monthly to buy groceries, make a mortgage payment, heat or cool a home, finance an education or save for retirement. They are often unaware of credit card rates, hidden fees, late charges or how to protect themselves from identity theft. Many youth have no idea what it costs to run a household.

Youth often don’t speak the language either. There is jargon in the finance world involving 401(k)’s, annuities, Roth plans, taxes, etc. This can get confusing to most adults, so imagine what it would be like if you were on your own learning about money for the first time. Therefore, it is so beneficial to have conversations early with your children about these topics. Talk about money, budgeting, expenses, finances and how to manage them. It may be difficult at first, but there are some upsides to doing this.

Have you ever told your child to turn off the lights if they are not in the room, or shut the refrigerator door as they stare bewildering into the refrigerator? If you enlighten them on what it costs to keep those video games going and food in the refrigerator, it might just inspire them to shut that door and save a little. Becoming aware of what an electric bill looks like and what it might cost to supply a home is valuable. And it’s not just electricity bills, but heating, cooling, entertainment, Internet and home maintenance too. How much could you save if they mowed the lawn? These educational talks may also include phone bills, car payments, lunch money, mortgages and maybe even vacations.

Before they get out in the “real world” and on their own, youth should have an idea of the expenses of maintaining a home. Again, with this education, they may think twice about cranking up the air conditioner or leaving all the lights on in your house. Knowing and understanding these household expenses may turn a kinder eye on the use of those amenities. If they are aware of these costs and then ask for a new video game or $20 for the evening, you can inform them that it will take some savings in the household budget to swing that. That may help turn off the lights and limit the handouts.

You will need to find a comfortable balance as to what age to bring these topics up and to the amount of information you’d like to share with your child. The key is to talk about money at all stages of their life – from knowing the denominations for currencies to savings for retirement. Bankrate has some tips to raise money-savvy teens and some topics to bring up to with your middle schoolers.

The other benefits gained by these talks are a greater knowledge of the world of money management. Not only will your youth learn the language of money – the terms, concepts and jargon that they use – but also how to budget and save for themselves. Is it better to lease or buy a car? When should I start saving for retirement? How will I finance college? What is a good mortgage rate?

Your children can also be your advocate in researching a topic. Have them investigate the best phone plans, if solar panels would be cost-effective or what are the bond market products available. They will learn new terms and concepts and can help you learn what might be best for the family. It also exposes them to these money management concepts with no risk. They can see what it’s like to run a household and what it might take to be financially independent without losing money. Then when they are making the decisions for themselves, they will have the confidence and hopefully not the fear of their finances.

Having these talks opens up the conversation that can lead to more knowledge about money and finances. This will benefit your child in the future and maybe even you in the present. Youth may look at money or the household budget differently if they know what money is coming in and where it is going out. They may not ask for the new pair of $80 jeans when they know that money could be set aside for their college tuition. They may be thankful for what they have and grateful for how hard you work. Just talking about it really costs nothing. How’s that for cost-effective?

For more information on money management or youth development programs, please visit the Michigan State University Extension website.

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