Why You Should Talk to Your Kids About Money

It's time to rethink those "off-limits" topics.

pink purse with money
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When we think about having "the talk" with kids, it's often in regards to conversations about sex, but it turns out that many parents can be just as uncomfortable discussing money. In fact, BECU's 2019 Finance and Parents Survey found that 72 percent of parents weren't talking to their kids about money, and 82 percent of parents cited fear as a barrier to having these conversations.

While it's understandable to want to just let kids be kids and leave the money talk to the adults, avoiding these conversations can have consequences. Keeping kids in the dark on topics around finances can prevent them from making smart money decisions later on—even if they're coming from a wealthy upbringing. It is estimated that 70 percent of wealthy families will lose their wealth by the second generation, and 90 percent will lose it by the third, according to the Williams Group wealth consultancy. One of the primary estimates as to why this happens is that prior generations aren't talking to the next ones about money.

So whether you're hoping to build generational wealth that'll last, or simply want your kids to be smart about their finances in the future, it's important to keep the lines of communication open. Here are some expert- and research-backed reasons you should talk to your kids about money.

Kids are more aware than you may think

In the 2014 Williams Group survey referenced above, one of the reasons cited for why parents didn't talk to their kids about money is because "they worry their children will become lazy and entitled." The reality, however, is that many kids already know, or quickly find out, about money concepts whether their parents talk to them about it or not.

According to research by David Whitebread and Sue Bingham of University of Cambridge, many of the habits around money that are developed in childhood—like the concepts of planning ahead, budgeting, delayed gratification, and returning borrowed items—are set in kids by age 7. This doesn't mean that it's too late to talk to your kids about money if they've surpassed this age, but instead that it's all the more reason to start sharing lessons and setting examples for them as early and often as possible.

A 2014 study by North Carolina State University that studied how parents talked to young children about money supports this idea, showing that children are paying attention even when we think they aren't. In a release about the study, lead author Lynsey Romo said: "The takeaway here is that even young kids are aware of financial issues, regardless of whether parents talk with them about money. And if parents aren't talking with their kids about subjects like family finances or debt, the kids are drawing their own conclusions—which may not be accurate. Even if parents don't want to discuss family finances with their children, it may be worthwhile to explain why they don't want to discuss that topic."

You can learn together

As much as kids may believe parents have all the answers, they don't. Eszylfie Taylor, a celebrity financial advisor and father to three daughters, believes that the problem isn't so much that parents are withholding information about money from their kids, but instead that they don't have the information in the first place.

"If I went to the average person on the street and said, 'Explain to me the difference between term insurance, whole life, and universal life insurance,' most people wouldn't know," he said. (He repeated this with the examples of 15-year mortgages vs. interest-only mortgages, wills vs. trusts, stocks vs. mutual funds, and so on.) "It's not because they're not smart or because they're not capable of understanding the concepts," he says, "It's just because no one taught them."

Rather than hide this lack of knowledge, however, Taylor believes parents should take the opportunity to learn and talk about finances together as a family. "Everybody should be involved in this process," he says.

Taylor practices what he preaches, often bringing his daughters in on money conversations at home. Sometimes this looks like having his daughters listen in on his business calls, and explaining what he and his clients discussed, and other times it looks like teaching them how to buy stocks with their allowance, or quizzing them on the differences between commercial and residential real estate.

"I know a lot of it is like drinking from a fire hydrant and they're still kids so they're not necessarily absorbing all of it," he says. "But at some point in the future, when these conversations are had and I'm not around, they're gonna go, 'Hey, yeah I remember this.' I don't want them completely caught off guard."

It's not just about what you say, but what you do

Dasha Kennedy, founder of financial education platform TheBrokeBlackGirl.com, is a big proponent of not only telling her kids about money, but also showing them good examples of how to navigate it. On the Money Confidential podcast, Kennedy talks about a time, early after her divorce, when her two sons wanted a new video game that she couldn't afford.

(Read the full transcript here.)

"So I talked to them about waiting for things and how important it is to wait for things and I let them know that the video game that I could afford was something that would have been used," she said. "It would have been very basic. It would not have been up to their liking." So she presented them with another option: They could wait a few months so she could save the money up and buy the exact game they wanted brand new.

"So I met my children exactly where they were at, and I had a conversation with them based on what they could understand," she says. "Of course, they wanted the better thing, they just had to wait and they took the option to wait." That's one of the ways Kennedy taught her boys a lesson about saving up and being patient.

When it comes to teaching children about money, Kennedy believes "it is 10 percent education, 90 percent imitation." She continues, explaining, "I can say anything to them, but they are going to repeat exactly what they see me do." For example, Kennedy said she would love to get a new car, but she still has a car that she's paying off, so she talked to her children about that. "I'm going to wait until I have paid this car off and it's completely paid off in full," she says. "I want them to see me practice that so that they in turn will do the exact same thing."

You can prepare them for your future and theirs

When it comes to uncomfortable money conversations, estate planning is pretty high up there for most people. No one likes to talk about what might happen when they're gone, but it's an important part of looking out for your family, and it's especially important if you have children.

While estate planning may not be a conversation for younger children, the overall concepts about family finances and planning for the future are important to communicate with your kids. "You can't shy away from [talking about money with kids], it needs to be dealt with head on—it's not something that's taboo," Taylor says. "When parents are like, 'I don't want the kids to know what I have,' I'm like, 'Why?' That [knowledge] should empower them, because one day it's gonna be theirs and you wanna prepare them for it."

You might be able to help close the gender wealth gap

The gender wealth gap is a longstanding and complex issue, and it's not going to be resolved simply by parents talking to their kids about money. However, it's worth considering how the way we do or don't talk to children about finances could be perpetuating gender roles.

The North Carolina State University study referenced above found that, while parents often didn't talk to children about investments, they were statistically far more likely to talk to their sons about investing than they were to talk to their daughters about the subject. Parents were also more likely to talk to boys than girls about debt.

So, regardless of the gender of your children, talking to them early and often about money can help give them the tools they need to have more financially healthy future.

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