As a parent, there are so many things to worry about. Are their brains and hearts developing well? Are they happy and kind? Are they getting the education they need to grow into well-adjusted, independent adults? I’ll admit, I worry so much about teaching them to be kind, to study for their upcoming math test, to stop fighting with their brother that I sometimes forget about teaching them about finances.
A financial education is just as important as learning about math, science, and history. It can be confusing and overwhelming, but it is important that our kids have a healthy relationship with money and that they have the information they need to set themselves up for financial success (however “success” is defined for them).
Scary Mommy recently talked to a couple experts to help us with this challenging process. Here are six tips on how to set our kids up for financial success.
1. Make an allowance your friend.
Shari Greco Reiches – a wealth manager, behavioral finance expert, and author of the book Maximize Your Return on Life: Invest Your Time and Money in What You Value Most – says that an allowance can be a helpful tool in teaching our kids the connection between money and responsibility.
“Make sure the allowance is earned—and discuss with your child the specific activities they need to do. Then hold firm! No excuses. If the leaves are not raked, no ‘do-over.’ That’s not how the world usually works,” Greco Reiches told Scary Mommy.
The key, according to Greco Reiches, is to separate everyday chores that impact the child’s situation (such as cleaning their room and making their bed) from extra chores that benefit the whole family (such as vacuuming or taking out the garbage). The former shouldn’t have a monetary award attached, but the latter should be connected to the allowance.
She says an allowance can start as early as when a child is 5 years old, with a dollar for each year of age as a good rule of thumb.
Gregg Murset, CEO of BusyKid, also agrees that an allowance can be used as a teaching tool and that it should start when they are young. “I believe kids learn best by doing,” he told Scary Mommy. “You need to let them have realistic experiences with their own money. Money that they have earned.”
Murset reminds us that money doesn’t look the same as it used to. “Money is not coins and paper bills anymore; it’s digital – literally just little numbers on a screen. So you need to let them learn in that context.”
2. The “Bucket Approach” can help with budgeting.
Greco Reiches suggests that parents encourage their child to allocate the allowance into three “buckets” – one for immediate spending, one for saving for that “big item,” and one for donations. Talk to them about their choices for each of the three buckets.
“Encourage your kids to reflect on their values – what is important to them, both for today and for the future,” Greco Reiches recommends. “With kids, the future may be a new bike, computer game, or sweater. Discuss why it makes sense to hold off on immediate gratification for a longer-term reward. That helps them learn how to set goals and stay disciplined. It causes them to think beyond the moment, which is critical to the concepts of budgeting, saving, and investing.”
Murset reminds parents that the nature of money has changed, and we must change with it. “The fantasy land of piggy banks, little jars, and envelopes is disappearing,” he says. He recommends giving kids an allowance that is connected to chores or household jobs, and then after they are paid for their work, “teach them a balanced financial approach by saving some, sharing or donating some and then spending the rest using a card.”
3. Don’t micromanage your kids’ spend vs. save decisions.
As Greco Reiches points out, each child will have their own perspective on whether to spend or save. She told Scary Mommy about when her family went on vacation to Disney World, and each child received a set amount of money to use as they wished. One child spent the money before they even got on the airplane; the other child came home from the vacation with some leftover money. Instead of swooping in to bail out her spending child with additional funds, Greco Reiches let her child feel the consequences of their spending decisions. “No better way to learn the importance of budgeting than that,” she told Scary Mommy.
3. Practice. Practice. Practice.
Murset’s top advice for parents is: (1) Practice, and (2) Don’t stop #1.
“Parents need to provide the opportunities for kids to learn how to live financially healthy and let them practice at it,” Murset told Scary Mommy. “Sure, there will be mistakes and bad decisions along the way, but also, some good things too.”
Most adults have an “I wish I knew this when I was young” moment, he reminds us, which we can use as an opportunity for discussion with our own kids.
4. Be open with your kids about your finances.
One issue that my husband and I struggle with is knowing how much specific information to share with our kids about our own finances. Murset says to share as much as you’re comfortable sharing, which is probably more than most parents have been sharing.
“I think that parents hold back way too much,” he told Scary Mommy. “You shouldn’t share how much money you earn, but what’s the negative to them knowing that your family spends $500 a month on electricity, $150 per month on water, and $300 each month on food.”
He says these are all part of those “life lessons” that kids need to learn, and suggests that letting kids know the cost of things that impact them so that it might change the way they view, use, and value those things.
5. Consider helping your kids invest in stocks.
Stocks are another financial “life lesson” to teach our kids. Murset suggests starting with something the child is interested in. “Once you have their interest in the actual stock, start a conversation that gets them to the next level,” he says.
6. Stop waiting until you’re an expert to get started.
“Most parents completely stress out when it comes to talking to their kids about money, mostly because they don’t consider themselves experts,” Murset says. “I say relax and share what you know … let’s face it, no one is perfect but if you can be fairly consistent, use a good system, have open discussions with your experiences and stick with it, they are going to pick it up quickly and be set up for success in the future.”
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