We learn nearly everything from our parents, from the big stuff, such as language and culture, to the little things, like how to brush our teeth and our preference for crunchy over creamy peanut butter. We also get indelible lessons about money from them—whether they’re passed on consciously or not.
As in anything, it’s best to teach kids directly about money and how it’s spent, saved and given away, rather than have them make costly mistakes from winging it. But where to start?
Beth Kobliner is a rock star in the personal finance world, and an expert on children and money. She says there’s clear data on the right way—and the wrong way—to approach how you introduce the concept and practice of money management to kids. Here is her advice.
Q: On what should parents base allowance? Specific chores or responsibilities? Or is it just good for kids to have their own money in general?
BK: Parents often get nervous about this subject. “We forgot to give allowance this week; kids forgot to ask,” etc. When I was writing my book, I looked at dozens of studies. Turns out, there’s no consensus. Giving an allowance is not necessary to make your kid financially savvy. And even if you do, there is no “right” way. But the key is talking! Have conversations and whatever you do, follow the 4 C’s:
- Be clear about what the money is for.
- Be consistent. Give it regularly.
- Use cash. It will help them make better money choices.
- Don’t pay for chores. University of Minnesota research found kids doing unpaid household chores from a young age is a key predictor in achieving life milestones such as graduation and starting a career. Kids need to develop an internal sense of motivation. They should know how to chip in as a family member with tasks, such as loading the dishwasher, taking out the trash, making the bed. Give a discrete amount of allowance and keep that separate from chores.
Q: What’s the best way to teach kids about saving, spending and giving?
BK: Start early! Research out of the University of Wisconsin shows by age 3 kids can understand basic money concepts like value and exchange. By age 7, key habits that help kids manage money are set, according to a report from the University of Cambridge.
As I write in my book, Make Your Kid a Money Genius, a great tool to help your child develop these habits is the classic three-jars method. Have your kid label each jar: for stuff right now, to save up for things in the future and to give to someone in need.
A few years back, I taught Elmo on Sesame Street about saving—we called it For Me, For You, For Later—and we found that not only did kids learn to save, but their parents actually started to save more!
Q: What are some common mistakes parents make about money?
BK: Don’t lie to your kids about money. If you have $20 in your pocket and they want ice cream, don’t say you left your wallet at home. It’s better to say something like, “No, I don’t think we need to spend money on that now. The dentist told us to avoid too much sugar.”
Present a unified front—don’t bring kids into your conflicts with your spouse over money. Researchers have found that college kids whose parents regularly fought about money when they were younger were nearly three times more likely to owe $500 or more on their credit cards than kids whose parents kept the financial peace.
If you are the parent of girls, mind the “money gap.” Studies show that parents are more likely to talk about financial issues with their sons than with their daughters. Not surprisingly, boys express more confidence about financial matters. Even when studies of adults show that women have more of the characteristics of successful investors, women’s confidence in their investing skills lags behind (2017 study from Wells Fargo). This can also be coupled with other toxic expectations of girls, based on gender roles: Research from University of Michigan found that girls do 30% more chores than boys and are less likely to be paid for them. This needs to change.
Q: What’s important for little kids, tweens and teens to know as they move through different life stages?
BK: Number one, always keep it age-appropriate! Don’t overburden a kindergartener with too much financial information—for instance, if you lose your job or experience another type of financial setback.
Take advantage of everyday teachable moments. Little kids should learn that you need money to buy things—and that credit and debit cards are not “magic.” A friend of mine was shopping at Target once and pulled out a $20 bill at the register and her child said, “Don’t pay for it mom, use the card!” Yikes! I absolutely advocate using cash as much as possible in front of your kids. They’ll also need to learn that you have to wait to save up money to buy things you want—just like waiting their turn at the swing set and waiting for their birthdays.
Around ages 5 to 8, you should go to an actual bank or credit union and open an account with your kid. Think of it as a financial rite of passage. Many banks offer no-fee youth accounts. Talk about how the bank is the safest place for their money—and about how it will earn interest, aka free money! Explain that accounts grow via compound interest. (When you invest, your money earns a certain interest rate. And then your interest, as it’s added to the pot, earns interest on itself. That’s called compounding.)
At the end of eighth grade, it’s time to start talking about college. Make sure to include money in the conversation. Talk about what your family can afford—some of the most painful memories grown-ups have told me are that they got into their dream school, and parents later told them they couldn’t afford it. My new multimedia resource We Need to Talk: College addresses this exact topic and features funny, honest and sometimes heartbreaking conversations with real families.
If your teen has a part-time job, now is a great time to open a Roth IRA and invest in index funds if you can afford that. Hear me out! Starting early means big savings down the line. With a part-time job comes their first official paychecks, and later they’ll need to file taxes. If they’re working during the school year, keep it to 15 hours a week or fewer, or ideally, save work for summer break.
Q: Anything else people should know about kids and money?
BK: Polls show money is the No. 1 stressor of adults. If your kid grows up knowing that it is OK to talk about money and ask questions about money, they’re going to have a huge advantage in life. Being a money genius isn’t about getting rich, it’s about lowering money stress.
I grew up in a family without a lot of money. But my parents were open about discussions of saving and spending. And I found that we were a money-anxiety-free household. It wasn’t until later, when I was researching my book, Make Your Kid a Money Genius, that I realized how unusual that was.
Those are the values I grew up with, and I want to share the idea of using conversations about money to demystify it. Earlier this year, I teamed up with SNL’s Kate McKinnon to create a funny video about the financial facts of life—and how clueless kids are about money. The idea is to get parents and kids talking around the kitchen table—that’s where I learned many money lessons growing up.
Finally the sad truth is that financial literacy has all but disappeared from the school curriculum. Only 17 states require some kind of personal finance education as a high school graduation requirement, and of those, only five require a semester-long course. And a survey of teachers found that only 1 in 5 feel “very competent” teaching the financial literacy topics. (National Endowment for Financial Education.)
So until we change these facts, this conversation really has to start happening at home.