I’ve been talking to my son about money since he was old enough to bang two nickels together (without putting them in his mouth, that is). But for many parents, discussing finances is as daunting as the birds and the bees.
Still, teaching kids to have responsible financial lives must start early. The basic skills underlying money smarts (like delaying gratification and distinguishing a need from a want) are typically set by age 7, according to research by the UK government. “That’s not to say that if kids haven’t learned it by then they’re not going to,” says study co-author Sue Bingham, Ph.D. “But if parents don’t talk about these things early on, they’re missing chances to steer their kids toward better habits.”
Luckily, jump-starting the conversation is easy. First, carry some cash. Little kids may not understand that actual money changes hands when you use a credit or debit card to buy things, explains Lewis Mandell, Ph.D., an economist and professor emeritus at SUNY Buffalo. Second, try to shop of off a list you make together. If your child sees you randomly throwing groceries in your cart, it’ll be tough for him to understand why he can’t do the same thing at the toy store.
Easy so far, right? Now just sneak the following expert-approved activities into your kiddo’s routine, and rest assured you’ve done your part to raise him money-wise.
Saving
Even if squirreling away cash hasn’t been second nature for you, let your child know you expect it of her. Experts say parental expectations are a powerful motivator.
Ages 3 to 5 — Get a piggy bank
Because preschoolers are very literal, it’s important to make their money easy to see, says Rachel Cruze, co-author (with her dad, anti-debt guru Dave Ramsey) of Smart Money Smart Kids: “Put bills in a see-through piggy bank, an envelope, or even a plastic jar so they can watch their savings grow.”
Ages 6 to 8 — Give ’em a goal
By this age, kids can plan for future purchases — at least those that are up to four weeks away. Make it easier by giving your child a way to visualize his objective: “Keep a chart on the wall that tracks how much he’s saved, how much he needs, and when he’ll reach his aim,” Cruze suggests. “Make sure to also include a picture of the thing he wants to give him some extra motivation.”
Ages 9 and up — Start Budgeting
Now that your kiddo’s older, she can use her cash for some essentials (clothes) as well as extras (a new app). You might give her a weekly lunch budget and “let her decide whether to spend it at the cafeteria or buy a loaf of bread and some cold cuts, and keep the change, instead,” says Ron Lieber, the Your Money columnist for The New York Times.
After age 9, kids should begin to put at least 10 percent of their money into a “long-term” savings account, says MSN Money columnist Liz Weston. These funds shouldn’t be earmarked for a specific future purpose but rather for emergencies like replacing a broken bike.
Spending
To become smart consumers, kids must make spending decisions. Even if they make bad ones, they’ll learn the lesson when the stakes are low.
Ages 3 to 5 — Take them shopping
Preschoolers don’t always understand that once a dollar bill is spent, it’s gone for good. Bring the lesson to life by having them choose a treat and pay for it themselves every once in a while. On days when your kid begs for things by the register, ask her a simple question: “Do you need that candy bar or do you want it?” The point isn’t for her to get it right all the time — she may argue that she neeeeeds it — but for you to talk out the differences between those two categories. (Say: “What would happen if you didn’t get it?”)
Ages 6 to 8 — Watch ads together
Ads are confusing to kids, who may view them as straight reports of a product’s awesomeness. To reduce the odds of their making a scene at the store, point out the tricks that ads use: “That plane looks fun, but did you know it doesn’t fly?”
Ages 9 and up — Be kind (and flexible)
You don’t want to bail kids out every time they make a bad spending decision, but there is a limit. Cruze knew a 10-year-old who saved up $300 for a PlayStation, but when he and his mom went to buy it, they realized he hadn’t figured on taxes and left the store. Bad decision, says Cruze: “When a kid saves that much, you want to reward that behavior. Pay the tax!” Bottom line: While too much help is enabling, too much rigidity will feel like a “gotcha.” Use your judgment.
Earning
Most experts agree it’s wise to link allowance to doing tasks around the house. “Kids who receive a no-strings-attached allowance are worse with money than those who do chores,” says Mandell.
Ages 3 to 5 — Dole out the dough
Nope, it’s not too early to start an allowance. Look around for tasks your kid can tackle for coins, like lining up the shoes in the mud room or putting old newspapers in the recycling bin, suggests Cruze.
Ages 6 to 8 — Look for bigger jobs
Discuss beforehand which chores you’ll pay for (bagging up leaves, say) and how much. “It’s important for kids to realize you don’t get paid for everything you do — and that the tasks you do get paid for aren’t all equal, so the dollar amount won’t be the same either,” says Cruze.
Ages 9 and up — Encourage entrepreneurship
Portland, OR dad Jake Johnson swaps chores with projects: If his 7-year-old wants to earn money, he has to find a need and propose a fix. “He noticed my car was dirty and suggested he clean it for $10,” says Johnson. With supervision, a lemonade stand or yard sale can serve the same purpose.
Giving
Across the board, says Lieber, parents say that they want their kid to grow up to be generous. Even if you aren’t able to donate regularly, your child can still learn how to be charitable.
Ages 3 to 5 — Give together
With little kids, direct charity is best: Let your child help you choose and deliver a plaything to a toy drive or take cans of pet food to an animal shelter.
Ages 6 to 8 — Let her choose a cause
Consider having your child divvy up her allowance into spend, save, and give piles to encourage her to earmark funds for charity. Let her decide where and how she’ll distribute her funds.
Ages 9 and up — Up the ante
By now, kids can plan drives with pals and even volunteer for the causes they care about. Your tween can also research charities before she donates her cash, including checking their ranking watchdog sites.