One of the most important things for a parent is that their children be financially independent. As their kids approach adulthood, clients often ask us to talk with them about finances to help them begin building skills that will set them up for financial success throughout their lives. Although speaking with children as young adults is valuable, money is an ongoing conversation parents can have with their kids throughout their lifetime.
No single script works for every family or even every child in a family. Instead, foundational skills can be taught and reinforced through everyday interactions with money that, over time, set children up for success.
Where Financial Literacy Begins
Financial writer Beth Kobliner suggests that children have the ability to grasp basic money concepts by age three.[1] This first concept is the basic idea that money is exchanged for goods and services. Think about how many times you have played ‘restaurant’ or ‘store’ with a child, and they instinctively know to charge you an exorbitant made-up amount like one hundred thousand million for a sand soup or pretend grilled cheese.
Another concept is the tradeoff between instant and delayed gratification, often introduced through something as simple as a piggy bank. This gives children a concrete choice to grapple with: spend the money now on candy or stickers, or save up for something bigger, like a Thomas the Tank Engine train.
A piggy bank also gives children a physical, tangible way to understand savings. They can hear the coins rattle, feel the weight as it fills, and watch it grow fuller over time. Even though modern financial transactions are often cashless, the physical aspect of coins and dollar bills is a valuable way to interact with money.
Teens and the College Years
A major study from Brigham Young University showed that simply talking with children about money isn’t enough. For teens in particular, getting them to take any advice from their parents can be a challenge. A better way is to let them take responsibility for some financial decisions. Kids who were allowed to make their own decisions – and mistakes – with money were more financially responsible, confident, and independent as adults.[2]
Encouraging your high schooler to take on a summer job, such as babysitting or camp counseling, gives them real experience earning their own money. When paired with a specific goal, this can teach what it takes to earn money and how far that money will go. This is also typically when a first checking account, savings account, and credit card enter the picture. It is worth taking time to teach kids how credit works and how to use it responsibly.
For older teens, the college years are an ideal time to learn about budgeting. Students are out of the house for the first time, exercising a level of independence over their own time, food, and money that most haven’t had before. They will learn to make trade-offs, like spending money to eat out for lunch versus eating in the dining hall and saving money to go out with friends. Running out of spending money in week two of the month can be an excellent lesson.
Building Confident Young Adults
When a young adult lands a first full-time job, the responsibility shifts more fully onto them. As they begin to accumulate money, this is often when short- and long-term savings become real concepts rather than abstract advice.
Short-term savings may include an emergency fund to cover unexpected bills such as car repairs. In contrast, long-term savings include opening a 401k, a brokerage account, or a Roth IRA. This introduces the world of investing and the concepts of risk, expected returns, and the power of compound interest. This is often where young adults learn how to manage assets and plan for their future more deliberately.
Perhaps the most important shift for young adults has less to do with the mechanics of money, and more with developing an understanding of what they value – which may look different from their parents. Does a high-end brand of shoes matter to them, or would a mid-tier brand be just as good? Is the convenience of food delivery worth the extra cost? There is no right answer, but the more they understand their values, the easier it is to evaluate these sorts of trade-offs.
A Lifelong Conversation
From a child’s first pretend transaction at a play store to a young adult weighing a designer label against savings towards a house, these daily interactions teach the foundational skills needed for financial independence.
While these financial skills are important, understanding how to use money in a way that reflects your values is just as important. At North Berkeley, our team works with families across generations as a resource to help teach financial lessons while opening up conversations about finances.
Resources:
[1] Kobliner, Beth. “Money Habits Are Set by Age 7. Teach Your Kids the Value of a Dollar Now.” PBS NewsHour, April 5, 2018.
[2] “Talk Is Cheap: Parent Financial Socialization and Emerging Adult Financial Well-Being.” BYU News
