by Kathleen Longo on August 25, 2014

Last night at dinner, my family was discussing plans to go to the Minnesota State Fair.  This year I told the kids that we are going to put them on a budget for the day to cover their food, drinks, and rides/games.  My son replied with a concerned look, “what is a budget?”

My two little kids are both 8 years old, and it is clear that we need some work on discussing finances, while introducing family and money values.  My husband and I proceeded to explain that a budget is a plan for how we spend our money.  Our son promptly replied that if he had a million dollars, then he wouldn’t need a budget.   We explained that even with a million dollars, you still need a plan for your money.  This brief conversation was a helpful reminder about the value of discussing financial decisions with our children at an early age.

Parents are role models for kids

It is important to have conversations about spending decisions as a family and be transparent about these decisions.   Talk about college and retirement savings and budgeting for family vacations, or charitable gifts that are important to the family.  Make sure your kids know where money from an ATM really comes from.  This doesn’t mean you need to divulge your financial statements, but you can share information about how your family makes money decisions.

The value of delayed gratification

Create family conversations around the difference between wants and needs.  There are many times when I catch myself saying “we cannot afford that” as a way to stop the conversation when my son wants that last minute check-out purchase.  Instead, next time we are at the impulse purchase stage, I will remind my children why we choose not to buy that item.  Each family needs to make their own decision about when kids can have an allowance because with the proper coaching an allowance can help teach how to save for a future expense, have some spending money, and learn to share with charities.

Share the costs

As teens get their first job, have them become responsible for some of their own costs.  This could mean responsibility for paying for their cell phone, cost of gas or auto insurance.  Even younger kids can get this opportunity through an allowance.  When my older daughter was about 13, we sat down together to figure out what we spent on her for clothes and personal care (an eye-opening experience for all of us).  Then, we set a budget and turned this money over to her monthly so that she could learn to make spending decisions.  She also used a handy tool available through to track her spending along with her budget.

Teach your kids about investing

Start saving early and show the amount of money that can accumulate by using online tools to show how the dollars can accumulate; small annual savings add up to impressive dollar amounts later.  You can also create a matching plan for their savings.  I still remember when I had my first job at age 14, my Grandpa (who loved to talk about money) set up my first IRA and matched all dollars that I saved.  I wasn’t sure what he was talking about at first, but his excitement convinced me that this was a good idea.

In conclusion, there is no wrong time to start talking about financial decisions with your children or young family members.  The money values that you have developed over a lifetime provide valuable lessons.  Although your lessons and approach to saving or spending might not be followed or exercised in exactly the way you intended, the goal is to create an open conversation about an important life topic.  Down the line this sets the stage for really big ticket items such as a car or college, which will make those impulse purchases at the check-out line seem like a pleasurable expense.

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