The following article is part of Chase Slate's 2018 Credit Outlook, which provides data-driven insights on how Americans' views on spending, saving and budgeting are changing.
Laurie Incontrera is proud of her oldest son Andrew's money management skills. "He pays for half of his college by working between 25 and 35 hours per week. He's also paid for several trips to New York and to Canada," she says.
Like Incontrera, most US parents want to teach their children to be responsible with money: According to the opens in a new windowChase Slate 2018 Credit Outlook, 56 percent have discussed money with their children; in fact, the survey found that millennials are far more likely than other generations to have discussed financing and budgeting with their parents.
Teaching good habits
When asked their reason for initiating the money discussion, 52 percent of parents said that they wanted their children to learn about credit and 45 percent wanted them to know how their important life decisions could be impacted by their how they manage their credit. The vast majority—74 percent—said that they wanted to teach their children responsible money habits.
For Incontrera's son, one of those habits is scheduling automatic transfers from his checking to savings account, which helps him constantly increase his savings. Incontrera and her husband began teaching him this technique when he entered junior high, she says.
She could have started her children's money lessons even sooner, says Erica Sandberg, author of Expecting Money: The Essential Financial Plan for New and Growing Families. Sandberg suggests blending math lessons with money advice. “Integrate the subject of money when you begin to teach numbers," she says. "You can have your kids stack and count coins, or look for what things cost on price tags."
According to the opens in a new windowChase Slate 2018 Credit Outlook, 83 percent of parents say that it is never too early to start teaching children about how to manage money. Most children receive their first money talk by the time they turn 13.
Tamar Satov, who blogs about making kids aware of finances for the Chartered Professional Accountants of Canada (CPA) and serves as senior editor of CPA Magazine, began the conversation much earlier. “I started talking to my son Adam about money when he was three or four in response to his requests for new toys or treats at the grocery store," she says. "He needed to learn that we can't always have what we want when we want it."
Sandberg suggests telling your kids about money in terms that they can understand. "Tell your daughter, 'If you get paid $10 an hour, it would take at least ten hours to earn enough for one expensive doll,'" she says.
By the time kids are in middle school, she says, they should have an idea of what it takes to run a household and cover the cost of things like rent or mortgage payments, gasoline and leisure activities. To drive this lesson home, she showed her boys how to save, encouraging them to carefully apportion their income.
Giving them credit
When it comes to credit, says Satov, kids need to understand that it's not free money. She recommends letting your child plug figures into an online credit card payment calculator that shows how long it takes—and how much it costs—to pay off a credit card. She cites an example: A balance of $1,000 with an interest rate of 18 percent will take 10 years to pay down, and will cost a total of $1,798.89. "That's nearly $800 in interest! That ought to get a kid's attention," she says.
These money messages seem to be sinking in: in the opens in a new windowChase Slate 2018 Credit Outlook, two thirds of millennials said that their parents' money lessons influenced their spending and saving habits. 58 percent said that talking about money with their parents made them better at managing their finances, while 59 percent said it made them smarter spenders.
Learning by example
But discussion is only part of the equation: Satov emphasizes that children also learn by watching. "If your kids see you constantly going on shopping sprees and not distinguishing between 'wants' and 'needs,' that's what they will perceive to be normal adult behavior and will likely follow suit when they grow up," she says.
That's not to say you can't splurge from time to time; in fact, the occasional treat can be a teachable money moment. "Explain to your child that those 'extras' have been planned and budgeted for above and beyond the costs of the family's needs," Satov says.
Ultimately, the key is transparency: helping your kids to understand the difficult financial decisions you face gives them experience that they can draw from when they face their own tough choices. And helping them understand how to analyze and plan their own finances gives them the tools they need to take responsibility for their own finances!