Dear Peak Money,
I was recently laid off from my job. My spouse and I expected it to happen, so we've been preparing. My nine-year-old daughter overheard us discussing family finances the other day, and when she started asking questions, my wife told her not to worry about it.
But I think she's old enough to understand the situation and why we need to cut back on some of our "fun" spending for a little while.
What's the right age to start introducing kids to responsible money management?
Sincerely,
Teachable Moment
Dear Teachable,
Your daughter's interest in your family finances is a good indicator that she's ready to start learning the basics of budgeting, spending and saving.
- It would be best if you sat her down to explain how your financial situation has changed, but reassure her you're not headed to the poorhouse since you and your wife have been good at saving.
Then you should get her involved in age-appropriate activities that will help her learn about budgeting, saving and spending responsibly so she sees the real-world application of these techniques. Here are some ideas:
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Have her plan a family outing. Give her a budget and ask her to help plan a fun family outing for a Friday night to get a better sense of how adults have to make spending decisions.
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Grocery shopping. Ask her to browse through flyers to compare the price of her go-to snacks or help you make a meal plan and shopping list.
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Set up an allowance. Two essential things to establish right off the bat—what the amount will be and whether it will be given or earned.
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Help her make a plan. Will she save her allowance for a big purchase? Help her calculate the taxes and figure out how many weeks she will have to save to make it happen.
- Organize your change jar. Get her to see the value of nickels and dimes by counting out the spare change lying around.
Bottom line: Experts agree that the sooner you have an open dialogue about finances with your kids, the easier it will be to keep that conversation going. Talking to teens about the cost of car insurance or a university student about the burden of credit card debt is much more effective if they develop a good understanding of money from an early age.