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It’s important that children start learning about money earlier than later.
“Our children are watching how we spend, save, invest, and give money,” writes Kimberly Palmer in “Smart Mom, Rich Mom.”We can seek out opportunities to talk about money with our children, even if it’s awkward at times or uncomfortable.”
Having these conversations can be easy and natural as long as you look for opportunities to have them, according to Palmer. But one thing parents shouldn’t do is be passive about their kids’ financial educations.
“Left untended, I could imagine unhealthy, wasteful behaviors taking root, from buying books and toys as soon as they are desired to a sense of entitlement without any generosity or responsibility attached,” she writes.
Here are 12 conversations about money you can have with your kid:
1. Mistakes you’ve made with money
Letting your kids in on the mistakes you’ve made with money teaches them it’s ok to be imperfect.
In fact, Brie Williams of State Street Global Advisors told Business Insider that letting them make mistakes is a better way to teach them about money than trying to protect them, as long as they’re not doing something that could significantly sabotage their future.
And whether you’ve made them personally or not, some other mistakes Palmer suggests talking about are waiting to start a 401(k) account, getting into credit card debt, not saving enough, and wasting money on a splurge you didn’t really need.
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2. How you earn money, and how you use it for family expenses
Direct-deposit and online shopping makes the modern exchange of goods and service for cash is almost invisible.
“My children think Amazon is a vast land of items that anyone can have sent to them with a few clicks of a button,” Palmer writes.
This impression was made clear when she noticed her children pretend-shopping as toddlers, paying instantly with “credit cards” like their parents did instead of with cash. “It made us think twice, so now we pull out cash more often instead of our credit cards so our kids can grasp the concept that money is real,” she writes.
Letting your kids know where money comes from and how it is being spent will help them understand the reality of it. “Talking about how Mom and Dad work hard to earn a paycheck so that we can turn around and use it to pay for our food, home, and car is one way to make the virtual world of commerce a little more real,” Palmer writes.
3. How to identify a commercial
Young children often don’t have a good grasp on the difference between an ad and a show, making them easy targets for advertisers.
“I couldn’t believe it when as a four-year-old, my daughter started getting excited about ads shown briefly before otherwise educational programming,” Palmer writes. “‘We need that!’ she would tell me as the screen flashed with a colorful toy.”
Palmer suggests shielding children from the ads and programs as well as teaching them how to be skeptical of all the promises in the ads.
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4. Basic economics
Teaching your kids about economics might not be the easiest subject – but you don’t have to do it alone.
Palmer suggests using books to help you.
She recommends “How Ella Grew an Electric Guitar,” by finance professor Orly Sade, to introduce economic concepts and entrepreneurship to 8-14-year-olds, and “The Short Seller” by Elissa Weissman for the middle-schooler who wants a head start in stocks.
When your kids are no longer kids, there are also books for new grads to help them get started on their finances.
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5. Planning for a big goal
Asking for toys here and there or making the occasional bigger purchase ultimately won’t prepare kids to save when it matters – for instance, when they want to buy a car or pay for college later in life.
Palmer suggests encouraging them to draw a picture of what they want and consider different ways the family could save to make that goal possible.
“It gets them thinking about trade-offs and delayed gratification,” she writes.
6. Practicing generosity and gratitude
According to Palmer, it’s important for children to take a break from wanting and appreciate what they have by helping the less fortunate.
“One common theme that I found myself drawn to for my own family was to incorporate some kind of gratitude practice into daily life, whether it’s stopping to show appreciation for a meal or talking about what you appreciated or are grateful for in a weekly family meeting,” she writes.
7. Frugal habits
Being able to differentiate a want and a need can make your child less likely to overspend.
Palmer uses a visual concept proposed by Ron Lieber, a New York Times columnist, to help her kids differentiate between the two.
He recommends that you draw a line labeled “needs” on one side and “wants” on the other, and write down different items along that spectrum. When your kids next make a request, they can consider where it belongs on that line.
For more of Lieber’s insights, read his recommended answers to five of the most awkward questions kids ask about money.
8. How to protect their privacy online
When kids display their private information online, they’re not only putting their financial futures at risk. They are also putting their safety at risk.
“When they first go online, we can explain to them how to limit personal details and the photos they share, because whatever they post is potentially accessible to strangers and searchable online forever,” Palmer writes.
- Flickr / Thomas Frost Jensen
9. What happens if something goes wrong
Life insurance and wills probably don’t seem interesting to teenagers (or, let’s be honest, to anyone), but it’s crucial that they know the importance of them.
“It can be useful to emphasize to risk-seeking teens that as twentysomethings, they’ll want to make sure they have certain protections in place, like renter’s insurance and health insurance,” she writes.
10. How to use credit cards and bank accounts
Letting your kids look over your shoulders when you manage your credit cards and bank accounts could teach them lessons on payment methods and withdrawing cash.
Palmer feels strongly about this lesson because it’s one she could have used herself as a child or teen. She writes:
On a trip off campus during my college days I stood at the ATM for five minutes, with impatient customers lined up behind me, trying to figure out how the heck to insert my debit card and get money out of the machine.
A few months later, I realized I had overdrawn my bank account and had to pay a penalty fee. It’s not the worst way to learn, and I never overdrew my accounts again, but the situation might have been prevented with a few hands-on trips to the bank as teens.
11. Being assertive about your money
According to Palmer, letting your kid overhear you calling a company to ask for a refund or to demand better service is good for them. It will show your kids how to do it because they may have to do the same one day.
Palmer also suggests helping them practice asking for money before they get their first job offer – so they know what words to use and can get comfortable with it – just as her father helped her.
“My dad held this practice conversation with me the night before I negotiated my first job salary, and the subsequent conversation ended up netting me a starting salary that was $5,000 higher than it would have been if I hadn’t asked,” she writes.
- Flickr / Erich Stüssi
12. Getting comfortable with retirement and investment concepts
Retirement accounts such as 401 (k)s and Roth IRAs can be a headache even for grown-ups.
But the sooner we introduce the terms to teens and children, the more prepared they will be when they open an account with their first job.
“We can help ease young people’s fears of the stock market by talking about it and even showing them our own retirement profiles when they’re ready,” Palmer writes.