Teaching Your Kids About Money

Teaching your kids about money can be challenging. For instance, how do you respond to the question: “How much do you make, Mom or Dad?”? When this topic comes up and you shudder at the thought of divulging your top-secret salary to your young kids, only to blabber to their friends on the playground, think twice before answering. They might not necessarily be asking for a number. Even if they are, your mission needs to be to redirect, rather than to stop the conversation dead in its tracks.

Being Rich vs Being Wealthy

In today’s society, kids easily develop a fascination for being “rich.” My own children know my disdain for that word. It is important to distinguish the difference between being “rich” and being “wealthy.” We’ve discussed that you don’t need to earn millions of dollars a year to be wealthy. On the contrary, it takes good habits. People can present a “rich” façade on social media or even in person, but their bank and investment accounts might tell a different story.

More Important Than What You Make is What You Save

How do we teach our children to understand what it takes to be financially secure? This all goes back to how to answer the “how much do you make?” question from your kids. Regardless of how much you make, what’s important is how much you save. It’s the stewardship of the dollars that you do have.

Having Priorities in the Correct Order

Instead of telling your children that it’s none of their business how much you make, explain that the family uses your salary for many different purposes. Obviously, the main purpose is to keep the family running (pay for the house and all the utilities required to operate it, food, and medical needs). The next priority is to save for the future. Depending on the child’s age, you can have a high-level discussion akin to putting money in a piggy bank for a rainy day or more in-depth discussion about saving for retirement. Next comes charitable intent which takes a portion of income and finally, what the kids see as most important, the discretionary spending (vacations, cars, the latest fashions, electronics, etc.). Explain to your children that the discretionary spending is what most kids see and then apply the superficial label to others as being “rich”. Take it a step further and ask your kids if they know how much those “rich” people are saving for their retirement or other goals or how much they give to charity to help others. I’ll bet the answer is that they have no idea. This is where you can explain that those people might not be“wealthy”as they might not have much saved and might be dangerously living from paycheck to paycheck.
Furthermore, you can discuss what happens to a family if jobs are lost and there are no savings to tap into to pay basic household needs. Explain the importance of an emergency fund and living within your means. Hopefully, teaching your kids about money will provide them comfort, lessen their desire to keep up with the Joneses, and plant the seed for future financial success by creating general fiscal awareness.

Have more questions? Contact Us

Missie Beach, CFP®, CDFA®
Senior Financial Advisor

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By Published On: January 25, 2023

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