How to Talk to Kids about Money

In a recent survey, over 90 percent of parents said they were worried about their kids’ ability to make financial decisions. Good money management starts in the home and often your views toward financial literacy make a huge difference in how prepared your children are going to be. Each family must deal with money issues their own way, but here is a guide to how to handle the most common questions in a way that prepares children and alleviates the fears of mom and dad.

Allow children to make small mistakes when they’re young. When you give your kids an allowance, it belongs to them. If they spend too much money at the mall, let them live with the consequences. When your son has no money at the end of the month to see a movie with friends, do not bail him out with an advance on his allowance. He must learn the value of saving and often that value can only be appreciated through the experience of overspending. Wouldn’t it be better that your son learn that lesson now rather than later with a lot of money at stake? You can also prevent some of this in the beginning when the allowance is first given. Encourage your children to split their allowance into thirds. Take one-third and put it in savings, another third to charity, and allow them to spend a third on whatever you all decide is an acceptable purchase. This gets them started on money management properly.

Be honest about your finances. When your children ask you how much you get paid, you don’t have to tell them actual dollars and cents. Instead, you can tell them that you make enough to live comfortably and take care of the essentials that the family needs. If that’s not true, let the children’s ages and maturity be your guide. For children twelve and under, don’t worry them by saying that you can’t pay the bills. Rather, talk to them about the importance of budgeting and living within your means. For those over twelve years of age, talk openly about the struggle to pay bills. Outline the ways in which you are getting your finances straightened out and discuss ways your older kids can help, like getting a part-time job.

[header = page 2] Don’t feel pressured into buying a new car for your teenage driver. It’s often a better deal financially to allow use of the family car. This encourages your child to use better decision making skills if they believe that the car is needed by mom and dad and not just their own personal toy. Insurance also costs less this way and gives you more control over how the vehicle is used. If your daughter really needs her own car and you have the means, she should at least pay for part of it. Take care of maintenance on big things like tires and transmission, but put her in charge of oil changes and gas. Kids are less likely to drive carelessly when they are responsible for the finances involved with taking care of the car, too. This is also a good time for your teenager to get a part-time job in order to make part of the payments or to pay for insurance as well.

Split the cost of expensive items. When your children get old enough to want items that cost a bit more, make a deal with them. You pay for the amount that seems fair, the amount that you can afford. If they want something that costs more than that, they should be required to make up the difference. They will either decide they don’t need the expensive item after all or they will learn to save for what they really want.

Wait until the kids are older before giving out debit or credit cards. In middle school, they are simply too young to understand how to use plastic. In high school, an ATM card to access their own money in their personal checking or savings account makes sense. Make sure it’s not a debit card, just a regular ATM card that won’t allow purchases but lets them withdraw cash or make deposits. Keep an eye on how it’s used and if the card is abused, take it away. Closer to college, give your young adult a credit card with a low balance. Coach the kid on debt management, paying bills on time and in full each month, and how to practice responsible spending. When he or she gets to college, the credit card offers will come flooding in and it’ll be good to have a child with some experience dealing with these issues ahead of time while you can stay on top of it.

Plan college payments together. Sit down with your college senior and talk about the schools on her wish list. Discuss the costs and what you can contribute. Kids are like anyone else, they can understand better if they see the numbers in front of them. Research scholarships, grants, and loan opportunities. Make sure the decisions are based on a full appreciation of the terms and payback schedules.

MORE FROM HYBRID MOM:

• 5 Ways to Wipe Out Your Credit Card Balances
• Stock Market 101: Use Wall Street Survivor to Navigate the Market
• The Four Biggest Money Mistakes Working Moms Make

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