Your Children and Finances: How to Instill a Healthy Relationship with Money

Money can be difficult to talk about. One’s finances can be an uncomfortable topic among friends, with your parents and even with your own children. But when it comes to your kids especially, there are important discussions to have.

As a parent myself, I want my kids to grow into caring, responsible adults – and I want them to have a healthy relationship with money. As a financial advisor in New Jersey, I know that executing that last part may be harder than it seems.

In a recent study, Millennials aged 23 to 35 were asked five basic financial questions. Only 24 percent of respondents answered the first three questions correctly and only 8 percent got all five of them right.

In some ways, today’s digital age makes it challenging to teach kids about money – most children don’t see Mom and Dad paying bills and balancing the checkbook like they used to. Still, there are hands-on ways to teach them about money. Instilling these lessons early on can have a long-lasting effect.


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Hands-on Money Lesson for Younger Kids (Ages 7 to 12)

Do your kids still go trick-or-treating? Believe it or not, there can be a lesson here.

Instead of letting your kids eat mounds of Halloween candy in one night, use their treats as currency. Your child can pay you five pieces of candy in exchange for a small toy, 10 pieces for a medium toy, or 15 pieces for a large toy. (You can adjust these “prices” however you like.)

In exchange, your child gets a valuable lesson in opportunity cost (i.e., giving up candy for something they want even more, like a toy). Not having to put up with an impending sugar crash makes this a win-win.

Instilling a healthy relationship with money in your kids early on can make a huge impact later on.

Hands-on Money Lesson for Teenagers (Ages 13 to 18)

Once your children become teenagers, they may be ready to start managing their own money under your close supervision.

One way to help them learn is with a prepaid debit card for minors. Unlike bank accounts and credit cards, these cards don’t let your kids overspend. Plus, often times, youth accounts come with extensive parental controls and in-app features. For example, some apps I’ve seen allow a parent to assign and track chores, pay allowances and control how their child spends money. Kids can use the app to complete chores, fund savings goals and even donate to charity (with their parents’ permission, of course).

It’s important for your children to have a healthy relationship with money in their teens, because life on their own may soon be approaching.

7 Financial Lessons to Pass On

Why is money so important to discuss with your kids? Here are 7 financial lessons children should know that will help them down the road:

Lesson 1: There’s a Difference Between Needs and Wants

Differentiating between needs and wants is one of the earliest lessons your child can learn. When you go to the grocery store, take the opportunity to explain that certain items (like laundry detergent) are needs, while other items (like ice cream) are wants.

If you give your children an allowance, let them pay for their wants. This will force them to ask questions like: Would I rather spend my money on a $10 toy I kind-of want now, or save up for that Nintendo Switch I really want?

Lesson 2: Unexpected Life Changes Can Affect Your Finances

Explain to your child that life can change unexpectedly, and those changes can affect their finances. Some of these changes may be good, like getting a job opportunity across the country or getting married. Others may be sad or stressful, like having a close family member pass away or losing your job.

Life changes may force you to adjust your financial life and goals, which is why it’s important to have a game plan in place for how you’ll react. Consider how COVID-19 changed life for your kids: Schooling from home, having your parents working from home, less going out and celebrating birthdays online. Talk to them about ways the pandemic has changed life financially.

Lesson 3: Save, Budget and Build an Emergency Fund

One way to save for your needs and wants (Lesson #1) and roll with life’s unexpected changes (Lesson #2) is to create a budget and build an emergency fund. Together, these two actions can help show your children how they can reach their goals and adapt to any curveballs life throws their way.

If your child isn’t old enough to manage his or her own money, create a mock budget to practice with. Giving children a fake income, say $1,000, and telling them to use that money to fund all of their expenses can be a great life lesson. Explain how they can use the leftover money for their wants and goals.

For older children, consider a teen bank account that can help drive home these concepts through first-hand experiences. Some accounts have built-in financial quizzes to help them learn to budget, save and invest. Children are able to split their money into different savings buckets and receive a one-time bonus from parents when they reach their goal.

Lesson 4: It Pays BIG to Save Early

Compound interest is an incredible, magical force that allows you to build long-lasting wealth. But when you’re a kid, it can be a difficult concept to understand.

One way to drive this lesson home is with their allowance, their Halloween “treat money” or with a reward program. For example, tell your child that if they save their allowance (or Halloween candy) for the whole month, you’ll give them more as a reward. Do this for every month, so they can see that not only do they still have what they started with, but the amount they have is bigger.

If you use a reward program, tell your child that they can get a toy in the $10 range at the end of the month, or they can get a toy for $15 if they wait until later. Continue this process for every month they wait.

Lesson 5: Stock Market Volatility is Normal

Another complicated concept for kids (and adults!) is the stock market. How do you teach children that while the market has grown overall, there have been pockets of volatility (such as in 2009 and again in 2020)?

Try using weather as an analogy – stock market volatility is like the change in seasons. It gets warmer as we approach summer, but it doesn’t happen in a straight line. It may be 50 degrees one day, 46 degrees the next, and 52 the next. The daily temperatures stagger, but historically, it does eventually get warmer.

Charts can also be helpful when explaining something abstract like stock market volatility. This table shows the S&P 500 over the past 40 years:

Screenshot: Google Finance

Lesson 6: Keep the Big Picture in Mind

Money is one of the leading causes of stress for Americans, but focusing on your long-term goals, even if it’s just for a few minutes, can help calm your nerves and take positive steps toward your goals.

Have your child write down their financial goals (whether it’s saving up for a video game or a down payment on their first car). Then encourage them to save the goals on their phone or tape them to their bathroom mirror for motivation.

Lesson 7: Don’t Be Afraid to Go to a Professional for Help 

Just as you would go to a doctor to help cure a tummy ache, a financial advisor can help you build a solid financial footing. If your child is mature enough, let them tag along to your next meeting with your financial advisor. I encourage this will all my clients who are parents. Doing so can:

  • Open the door to honest communication and give you a safe space to share your expectations, hopes and dreams for your kids
  • Increase the likelihood that your kids will be good stewards of your wealth
  • Get your kids comfortable with seeking help from a trusted financial advisor

How Foran Financial Group Can Help

As a financial advisor in New Jersey and a father myself, I encourage clients to include their children when we meet. I’ve seen some kids avoid common financial pitfalls in adulthood because their parents instilled good values in them. But I’ve seen others fly through their inheritance at record speed because they didn’t know what to do with it.

At Foran Financial Group, we want to make sure you teach your kids sound financial lessons they can carry with them for a lifetime. Whether you need advice on how to set up a college fund or teach your kids about budgeting, we’re here to help. Schedule a complimentary, no-obligation consultation with our team, and get the conversation started.

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The financial professionals associated with Foran Financial Group may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.