Talking to Children About Money: Starting Early and Staying Practical

How to Introduce Financial Education to Kids of All Ages

In previous columns, I focused on the unique challenges faced by truly wealthy parents. However, today's topic is relevant to parents of all economic classes: when to start talking to children about money.

The answer is to start early. Even if you believe you're already having these conversations, it's important to distinguish between conversations and lectures, horror stories, or slogans. I'm talking about relaxed, meaningful discussions where parents and children sit together, put their phones aside, ask questions, and exchange answers about this sensitive topic.

The Role of Pocket Money

Children understand the relationship to money in a practical way. One of the most useful tools for parents of any economic status is pocket money. Various methods can be used to instill financial education through pocket money, all of which teach children that money reflects our priorities.

For example, a visit to the mall can be educational for everyone, especially during holidays like Passover. When I take my children to the mall, I give each of them 50 shekels and explain: "These are your 50 shekels. You can spend them however you want, but remember, if you buy one expensive toy, you won't have money left for other things. If you buy a lot of candy, you won't have money left for a toy, and if you buy some candy, you might have enough left for a small toy." This approach allows children to make their own decisions and understand the consequences.

I also use this method when traveling abroad, giving each child a budget for specific expenses like gifts for friends, while excluding items like sneakers, which are the parents' responsibility.

Setting Clear Expectations

When giving older children fixed pocket money, it's important to explain your logic and list the areas it should cover and those it shouldn't. Some parents give pocket money in exchange for chores, while others oppose this, believing chores are part of family life. Whatever your values, align as parents before conveying this to your child.

How do you choose the amount of pocket money? It shouldn't be arbitrary. For example, an 11-year-old shouldn't get more than their 9-year-old sibling just because they're older. The difference should relate to what you expect them to buy: Does the child travel alone and need snack money? Do they go out with friends and buy gifts? These questions help determine the appropriate amount.

Avoid giving too much pocket money, which allows children to buy everything they want, undermining the goal of teaching them to make independent financial decisions. Similarly, the amount shouldn't be so small that they can't make meaningful choices.

It's crucial to stick to your word as parents and not give more money once the child has spent their allocation. Whether it's one-time or regular pocket money, it's an opportunity for children to make decisions about money. Even when your heart goes out to a child who spent all their monthly pocket money immediately, stand firm to instill financial awareness.

Teaching Responsibility and Independence

Ultimately, the goal is for children to manage their money wisely and budget monthly. You can also encourage them to work during the school year or holidays, increasing their available funds according to your values.

For significant expenses like a bicycle, phone, or other big-ticket items, affluent parents may face a dilemma. They fondly remember struggling for money themselves but don't want their children to struggle the same way. One solution is to provide a portion of the money needed (e.g., 75% of the price) and have the children save or work for the rest.

This approach helps balance teaching financial responsibility without depriving them of life's pleasures.

Starting early and staying practical in conversations about money helps children develop a healthy relationship with finances, setting them up for a financially responsible future.