Money Habits: How They Form And How To Break Them

    6 minute read
    Learn more about how our money habits are formed.
    Kids will learn about money from someone, but almost 70% of parents have some reluctance when it comes to talking about money with their children. Is it better they learn from a celebrity on social media or a trusted parent? Here we share 5 tips for talking to your kids about money.

    Be honest
    Experts agree not talking about money with our kids can create confusion and insecurity in our children. In today’s world, many parents are under financial stress and may be unaware that it not only has harmful effects on us as individuals, but it also affects our family.  
    Instead of hiding financial shortcomings or covering it up when money is tight, consider helping your children learn about money decisions with age-appropriate honesty, such as:
    • If you learned an important lesson.
    • If you regret a decision.
    • If you acquired a debt when you wished you hadn’t.
    • If you wished you were saving more.
    We all learn from the decisions we make, so tell your kids about it.  Honest moments with your children are an opportunity for them to understand how you respond to financial stress. Good decisions and lessons learned are all helpful. This shows your kids that talking about money is healthy. By telling kids the truth we help them understand the situation and learn a valuable lesson about finances in the process.

    Normalize the money conversation
    As parents we have an opportunity to break the mold on a widely held belief that talking about finances is off-limits. In previous generations, parents and grandparents talked about “knowing the value of a dollar.” While some things in the world regarding money have changed, it’s still meaningful for children to learn the importance of money in daily life. Kids don’t need to be as sheltered from financial matters as we may think.

    The best time to talk to kids about money
    Experts agree parents should consider age appropriate conversations around money – it can be helpful to have the conversations in stages as well, in order to alleviate anxiety (yours and theirs). Even if a child isn’t ready for facts and figures yet, it’s helpful for them to understand the decisions you make and the impact they have.  Here are some general topics for each age group: 
    • Between ages 5 and 10, children are able to understand what it means to save and spend.  This is a good age to give them ways to earn money and let them decide how to save or spend it so they can learn the value of a dollar.  Talk to them about sales tax and getting a good deal. Explain extra costs that come with dining out like tipping.  Learning the importance of spending and saving at an early age will better prepare them for future financial decision-making.

    • At ages 10 to 15, learning to manage a spending plan and save for future expenses is becoming more important because they are starting to have more expenses.  This is an opportune time to give them more responsibility.  Have them create a spending plan for when they want to eat out with friends or go on a school trip. Increase their responsibilities at home and give them more ways to earn money so they can include that money in their spending plan. Now is also a good time to start explaining the benefits of investing and earning interest over time.

    • As our children prepare to head off to college it is the time to have them save for their future. They need to understand the day-to-day costs of living on their own so they know how to save and plan for living expenses.  This is all about life expenses and making sure they are all accounted for in their spending plan.  Point out things like rent, car maintenance, doctors appointment co-pays and other life expenses.

    How to start the conversation
    Kids are often more perceptive than we give them credit for–observing a parent’s behavior at all times, noticing the slightest pitch, tone, mood, or facial expression. You may be surprised at what your kids already know about finances (or what they need to know more about). It may be helpful to guide the conversation about money towards family values and family views on the best ways to use money.
    For example, share with them:
    • Saving money is important because it helped pay for your first car, or buy your home.
    • Spending plans (or budgets) are important because knowing how much you spend and how much you have left after can help you stress less and enjoy the financial slack you’ve built.
    • Charitable contributions are important because giving to others is meaningful in your family.
    The point of a money conversation with your kids is not about how much money you make, or even how much debt you have. What’s important is they are able to understand why you made the decisions you made and the impact it had. 

    Focus on values, not figures
    If you’re hesitant about disclosing your salary or major expenses to your kids, don’t worry. The good news is your kids don’t really want, or probably need, to know that stuff. They need concepts that are important when creating a plan for their money: 
    • How much money they make?
    • How much they spend?
    • How much is left afterwards?
    • How much to save?
    • How much should be set aside to pay down debt?
    • How much to give to causes important to them?

    Looking for an easy way to get started? Our spending plan can be downloaded for free. This is an easy way to show what a real world plan looks like. Tools like this are a great foundation for setting up your children for financial health because it enables them to track spending habits and see just how far their money is going.