Knowing how and when to start teaching kids about money and identifying what skills they need can be tricky.
Parents often don’t want to worry their kids and want them to be carefree — but being financially confident and literate can be key to securing them a happy, comfortable future. Ultimately, boosting your kid’s financial confidence is crucial, experts say.
“Having good financial responsibility is essential to being successful in life because money skills impact important milestones, like marriage, getting a job or buying a home,” Susan Hirshman, director of wealth management at Schwab Wealth Advisory, told CNBC Make It.
Employers might run credit checks to screen employees for example, she explains, and making major purchases like a home can also be impacted by your history with money. Establishing good habits early on can help avoid any issues, Hirshman said.
Other dangers that kids might fall victim to if they aren’t financially educated include potential debt traps like “buy now pay later,” says Seth Wunder, chief investment officer at Acorns.
Eric Landolt, head of family advisory and art & collecting at UBS Global Wealth Management, took it a step further.
“Financial literacy should be a basic skill, a basic skill in the sense of like, reading or writing or doing so something in a way that should be brought to everyone in any circumstance,” he said. Money decisions can also have a broader impact on society depending on how it is spent and invested, he added.
It’s clear how important the conversation about money truly is. But when is the right time to start having it? Experts have differing opinions, but it might be much earlier than you think.
Wunder said six is the age where kids start being able to grasp some money concepts.
“This is the age children are starting to understand math at school and are able to comprehend the consequences of ‘if it’s gone, it’s gone’ and setting aside money for things they really want,” he said.
By the time kids are seven a lot of their financial habits are already formed, he added, noting that kids are aware of and are curious about money far sooner than many parents might expect.
Hirshman suggests starting even earlier, between three and five. “This is when they have the ability to make choices and reason,” she said, adding that starting simple and progressing to passing on parents’ own money values is ideal.
Landolt falls in between the two, saying that as early as five years old is a good time to start, as kids are most receptive to messages about family values conveyed by parents or grandparents then. He recommends teaching five- to eight-year-olds “very, very basic things” like that money has value and how choices made with it have an impact.
For eight to 12-year-olds topics can be more complex, Landolt believes. “You can talk about the different types or uses of money. So it could be saving or spending, some of those concepts, building versus investing.”
As kids become teenagers, so between 12 and 15, they can be given more responsibility such as managing a small budget, Landolt explained. This includes concepts like spending, saving and understanding how decisions to spend money can impact how much money is left later, but in more depth, he said. You could also begin discussing family-wide financial decisions like supporting philanthropic projects or charities at this age and getting kids opinions on those, Landolt said.
Finally, 16 to 18-year-olds might learn about how the financial system and banks work, a topic that Landolt said will also often be picked up in school.
Whenever you decide to start having conversations about money with your kids, there’s a few things the experts recommend keeping in mind.
Three of the most important things to remember are being consistent, focusing on actions and having continuous conversations, Hirschman believes.
“You may let them make small and teachable mistakes so they’re able to learn from them,” she said.
One way to do this is by giving them an allowance, she pointed out. Wunder agrees with this suggestion, explaining that it can teach kids responsible budgeting, spending and saving.
Making sure conversations are age-appropriate is also key, he said.
“How you broach the subject with a six-year-old will be different to a teenager, but all have the common theme of teaching kids the difference between need and want,” Wunder explained.
Finally, and as with many things, parents leading by example can also have an immense impact, Hirshman believes. “It’s important for parents to practice what they preach and to try not to give mixed messages,” she said.