When is it too young to talk about money? Maaaaaybe before age 3. But from age 3-5 kids already understand the idea of exchanging things of value.
In fact, a survey out of University of Cambridge concluded that, by age 7, many money habits are set, which means it’s essential to start early.
Here are some key financial concepts to communicate to your kiddos:
- Wants versus needs. For example, The family needs milk and vegetables, we want chocolate and ice cream.
- Delayed gratification. You’ve seen the marshmallow experiment, right? The longer kids were able to hold off on eating a marshmallow, the more likely they were to have higher SAT scores and fewer behavioral problems.
- Finite money. This is the precursor to budgeting. You could experiment with giving them a small amount of money during a grocery/shopping trip, and have them go through their own process of deciding what to buy. Or tell them the budget to buy a gift for X is limited to $Y so they start to get comfortable with making decisions on how to spend in situations.
- Opportunity costs. The above idea of finite money goes hand-in-hand with the idea of, you can’t buy or have everything. If I spend money on X, that means I’m giving up Y. My parents modeled this well… When we got excited for a big vacation, they literally got some poster board and drew a thermometer on it, and showed our weekly progress toward saving for that money goal. If we asked to go out to eat, go to Dairy Queen, buy something special, whatever, they’d ask, “Do you want to get closer to our vacation or do you want X?” You can always get X later.”
- Intrinsic motivation. One study out of University of Minnesota found that giving kids unpaid chores is actually a predictor of some key life milestones like graduating from school and even getting a first job. The reason: Kids who do unpaid household chores learn responsibility and benefit from the experience of being intrinsically motivated. On the contrary, paying for chores introduces an external motivation that can easily disappear.
- Saving. The most successful people I meet with are ones that have the mantra, “Always save for a rainy day.” When kids start to earn money from part-time jobs, that may lead to more expensive wants, like the latest video game console or even a first car. As a result, becoming skilled at socking money away is crucial.
- Credit. Although you usually can’t have your own credit card until you’re 18, it’s a good idea to get your kid comfortable with using a credit card to pay for things, so they don’t crash and burn after they leave home. This can be a secured, prepaid card with a limit. NerdWallet also has some thoughts on this: https://www.nerdwallet.com/article/finance/how-young-start-building-credit
Having ongoing conversations about money ensures that it never becomes a taboo topic. One of my favorite experts on talking to kids about money, Beth Kobliner, helped establish this site to cover potential conversations and topics, broken down by ages: https://www.consumerfinance.gov/consumer-tools/money-as-you-grow/ .