We nudge our kids to do their homework, cajole them into making their beds and teach them to be problem solvers. But there’s one major issue many parents fail to communicate effectively with their children about: money.
According to a recent survey by T. Rowe Price about kids and money, more than two-thirds of parents have some reluctance talking about money and almost two-thirds only discuss it when their kids ask (and they normally don’t).
The benefits, however, of having financially-oriented conversations with our kids are clear. In fact, parents who talk with their kids once a week about the issue are significantly more likely to have kids who say they are smart about money.
And not talking about money can result in an expensive disconnect. According to the Junior Achievement’s 2015 Teens and Personal Finance Survey, 48 percent of teens think their parents will help pay for college, while only 16 percent of parents actually plan to.
It's never too early to talk to your kids about money. Here are some ways to get you started:
1. Make money talk a part of your life — even if it feels awkward initially.
Money is less visible than it’s ever been. We’re paying with swipes, Venmo-ing our friends, depositing checks automatically and trading in cryptocurrencies. Many adults don’t understand all of that, we can’t expect kids to.
As you use money, even if it’s invisible, make an effort to explain what you’re doing. For example: “I’m getting cash from the ATM, but it went in there when I got paid automatically from my paycheck. You can’t pull money out if you don’t put it in to begin with.” Or, “I’m using a credit card to pay for this. The bill for this card will arrive at the end of the month. I’ll show you when I pay it.” Or, just keep it simple with “I’m buying chicken thighs today instead of chicken breasts because they’re on sale.”
2. Talk to them about goals – then help them reach for them.
Managing money is really about learning to use your limited resources to achieve the things you want most. That means knowing what those things are. Even young children can and should have things they’re saving for.
Talk them through the process of isolating their goals and then help them figure out a plan to get there. This will require helping young children (those too young to work) figure out a way to actually get money. You can do it via allowance, household jobs, well-managed birthday or holiday money. But open your mind to getting creative by, for example, matching the money they save. It’s very important that they experience the satisfaction not just of setting their goals, but reaching them. You don’t want it to take such a long time (because of a small allowance, for instance) that they give up.
3. Level the playing field.
It’s key to be clear about your own unconscious biases in how you’re raising your children. We’d all be horrified to think we were not giving our daughters the same financial grounding as we give our sons. And yet, on a national scale, that’s exactly what’s happening.
Junior Achievement’s study revealed that 40 percent of girls say their parents don’t talk to them enough about money management, while just 24 percent of boys say the same. And while 31 percent of boys say their parents help them keep track of money, just 20 percent of girls answered similarly. Ask yourself, are you having the same conversations with your daughters that you’re having with your sons?
4. Once you’ve talked, let your kids have some autonomy.
In about half of all households surveyed by T. Rowe, parents are willing to let their children decide when to save and when to spend. The kids with those adult-like freedoms are less likely to spend their money as soon as it lands in their hands, expect their parents to buy them what they want and even lie about what they spend their money on.
In other words, just like having financial autonomy is important to adults in partnerships and marriages, it has a similarly beneficial impact on our kids. Teach them well and let them go.
5. Have the college talk early.
Explain to your children how much you’ll be able to contribute and how much they’ll be responsible for. Look at how much schools offer in merit aid and scholarships (which don’t have to be repaid) and make sure your children apply to schools that are likely to really want them and therefore offer them more in aid. It’s far better to have this talk when your kids are freshmen in high school than when college applications are staring them in the face. You don’t want them to get their heart set on a school that’s ultimately unaffordable.
6. Pay attention to your actions, as well as your words.
When parents have and communicate they have emergency savings accounts, retirement savings accounts and other college savings accounts, their children are more likely to be savers, too. When parents shop for sport or are overly casual about how they use money, it’s tough to convince kids that they should do otherwise. No matter how old they are, children notice everything.
Jean Chatzky is the financial editor of NBC’s TODAY. Her latest title, "Women with money: The judgment-free guide to creating the joyful, less stressed, purposeful (and, yes, rich) life you deserve" comes out March 26.