It’s never easy to talk about money—and it’s especially tricky to figure out when your kids are ready to navigate the topic. Here, Ron Lieber, personal finance columnist for the New York Times and author of The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money, shares his strategies for passing on good financial habits to the next generation.
1. Don’t shy away from the conversation.
Kids have a tendency to ask questions about money sooner than you might think. Parents generally have to broach the subject for the first time when the tooth fairy pays her first visit. “That is often the first time a child handles money,” says Lieber. And once they have a little green, they typically want more: “Some kids will go so far as to attempt to remove additional teeth because they think that’s the best way to earn money. That, of course, is not the best way to earn money, so that might be the point at which you start an allowance, so kids can get a little more money in their hands and practice using it.”
2. Set a budget.
Parents should give kids just enough money to buy a few things they really want, but not so much that they don’t have to make difficult choices, says Lieber: “That might be a dollar per year of age or it might be 50 cents per year of age—somewhere in that range would be fine.”
As kids get older, ask yourself what you want them paying for. Will they be covering the cost of discretionary spending—souvenirs, candy, and other impulse buys—or do you want them to budget for both their wants and their needs? If the kids will be in charge of monitoring their entire budget, sit down with them to clearly define the approximate cost of their needs and set an appropriate budget, says Lieber.
3. Stick to a system.
Many parents blanch at allowances or fall out of the habit relatively quickly, because the logistics are complicated, says Lieber. To set yourself up for success, get all of the pieces into place to create a seamless system.
First, ditch the traditional ceramic piggy banks. “You want to start with a big plastic container or bin—the kind that holds the long fettuccini or two boxes of cheerios at once,” he says. “You can put a lot of money in there.” Plus, see-through plastic bins provide encouragement: “There’s something cool about looking through the clear plastic or the glass and watching the crumpled dollars rise up and trying to guess how much is in there,“ Lieber says.
Next, establish allowance as a ritual. Make sure you always have the money on hand and set multiple calendar alerts so you remember, says Lieber. Apps designed to track allowances, like FamZoo or Allowance Manager, can help solve some of these issues by allowing you to set up automatic payments, make savings goals, and more, but “kids should handle real money for the first three or four years of allowance.”
4. Let kids own their decisions.
Once you set a budget, it’s important to let your kids make their own financial choices—even if the way they’re choosing to spend their money doesn’t match your preferences, says Lieber. “It’s still up to you to issue a banned item and banned brand list but, once you’ve done that, if kids really want to spend on the highest possible priced Nikes and buy the rest of their clothes from a secondhand store, let them try it. Maybe they fail miserably, but better they get it all wrong when they’re still under your watch as opposed to when they’re 24 and it could result in a messed up credit score, an eviction notice, or worse.”
5. Practice tough love.
But what happens if kids don’t budget appropriately? “You don’t want to ever bail them out unless their physical comfort is at stake,” says Lieber. “You want them to live with the consequences of their decision.”
Instead of shelling out more money, sit down together and try to recreate the money trail. Lieber suggests these questions as a starting point: What was the money spent on? Which decisions were mistakes? Then, try to solve the problem. “The best solution may be for them to find a way to earn some money to do the things they can no longer afford to do,” he says. “Generally the best way to pay it off is to work it off.“
6. Be transparent about family finances.
Once kids have basic math skills (counting, multiplying, ect) and some experience handling money (usually through an allowance system), Lieber suggests sharing your income and net worth with kids: “They need to have some experience thinking about the things that make up a family budget, so over the course of many years you share with them what you spend on charity and you explain to them that even though when they Google your address and the first thing that comes up is some crazy Zillow number in the hundreds of thousands, the fact of the matter is that most families with younger kids are still also paying off a mortgage that also has numbers in the hundreds of thousands of dollars.”
“By the age of 15,16,17,18, most kids are ready to pass that test of adulthood,” says Lieber. Of course, share with caution: “If you’ve trusted them with other information that the family wants to keep within the family, and they have trouble keeping that to themselves, then they’re not ready.“