How to Talk to Your Kids About Money — Without Being a Financial Expert
How to start conversation around money and common misconceptions.
I am a proud mother of a soon to be teenager girl, who as you may know, helped me published our first children’s illustration book about very basics of timeless principles of investing, of course not on the technical side but those creative child-friendly analogies. I believe that those timeless principles are the must-have foundations of a healthy life long wealth journey for our rising generations.
Most parents spend years helping their children with math homework, piano practice, and hockey tournaments. Yet many of us rarely have intentional conversations about money. Financial literacy and wellness are not one or two conversations at age 16, but hundreds of mini conversations over the entire childhood as early as 5 years old if you wish.
So how? Let’s first talk about a few common misconceptions and try to understand and tackle them first. After all, aside from our schools efforts, I believe that parents play a much more critical role in raising financially strong next generations of ours.
Misconception #1: “I am not a financial expert, so I can’t teach my child.”
This is probably the biggest misconception.
Parents do not need to explain:
Bonds
Stocks
ETF
Derivatives
We simply need to carry a conversation like:
“Have you noticed that there are less items priced at $1 at the Dollar Store nowadays? Do you know why?”
This is actually a question my daughter asked me when we went to Dollar Store after COVID, and I took the opportunity and introduced “inflation” to her and surprisingly with her creative gene, she understood it since.
Your child will likely say: “oh yes. Why?”
You can reply: “Price of many products year over year increase because of something called inflation. So over the years many $1 items became $1.5 for example. Inflation can be healthy for the world but we can explain that another time.”
Misconception #2: Kids need to learn stocks and bonds first
Teaching kids stocks and bonds (financial instruments/products) is like teaching them to use tools to build a house without introducing the basic safety rules and principles. It is indeed rather dangerous.
Instead of teaching stocks and bonds first, we should gradually introduce the basics about finance and investing in a child-friendly and fun way. It will go a very long way for them.
For example, asking them why do mommy daddy go to work? How do we make sure we don’t run out of money to buy milk? Introducing to them that money has time value, etc.
Misconception #3: It’s too early to talk about money before high school
Research showed that our children observe and catch how we talk and act and also our spending habits and how we save and make money decisions, long before they are teenagers. Research also shows that roughly at 12 years old, our children listens to parents way less than their peers and environment outside of home.
Some children like my daughter ask parents questions which lead to money conversations, other children may be too shy to ask, in that case, parents can help asking them questions and help them understand those important principles.
Here are five easy conversations I believe we all can have fun conversations with our children.
Do you know where is the money from for us to buy groceries?
How can grandpa and grandma enjoy vacation without having to work right now?
Are iPad something you need or want?
Would you want $100 today or $110 in one year?
Do you want to know if mom changes one small spending habit, how much in 10 years can I benefit from that?
Children don’t have to be taught financial products first, they must learn the founding principles first.
The 5 Foundations of Financial Wellness
Time — Start early because time is your greatest asset.
Compounding — Small, consistent actions grow over time.
Patience — Not every reward needs to be immediate, i.e., delayed gratification
Diversification — Don’t put everything in one basket, whether it’s money, goals, or opportunities.
Ownership — Understand what it means to own something that creates value.
These five foundations are exactly what we built Fabulous Finance around — see the book →
I look forward to sharing more with you in our future blogs.