Money is a mystery for many people, but it doesn’t have to be that way for your family. While there are no guarantees, having money conversations with children from a young age may help them make smarter financial decisions when they get older. Talking with your parents can be equally important, although no less challenging.
However, you have to take the right approach or your family will tune you out.
For children, that typically means short, age-appropriate conversations worked into everyday life. A trip to the store can turn into a lesson on smart shopping. Cash in a birthday card can be a time to discuss saving versus spending. A first paycheck is the perfect segue into a talk about taxes.
“People try to take this classroom education approach,” says Noah Damsky, founder of Marina Wealth Advisors in Los Angeles. “The kids just don’t care. We have to meet them where they are.”
If you need to brush up on the basics yourself, you might consider taking a free online personal finance course first. Then, use the following tips to delve into money matters with your family.
[Read: 8 Free Investment Classes and Resources for Adults and Teens]
Talking to Young Children About Money
You can talk about money with even the youngest children, but it might not be until they reach elementary school age that they are able to firmly grasp many concepts.
“It’s definitely important to remember that it’s not one big talk,” says Jessica Andrews, general manager of family office and impact at wealth management firm Brighton Jones. Andrews says her firm uses a framework of “In/Out/Grow/Give” when teaching financial literacy to kid. It stands for earning, spending, investing and donating.
That can be a good place to start with your children as well. When they have access to money — such as through an allowance or a gift — explain that they have options and can split up cash to use it in more than one way.
At this age, the following are good topics and lessons to emphasize:
— Trade-offs: Discuss how you can’t always have everything you want. Sometimes you need to choose between two items you like. Practice this by involving children in decisions such as what activities to do on the weekend and which items to buy for dinner in the store.
— Goal setting: Although life often requires trade-offs, explain to children that they can make goals for the items that are important to them. Help them think about what they might want and then write down the steps to obtaining it, such as doing extra chores or using money received as a gift.
— Savings: The key to reaching goals is having self-discipline to say ‘no’ to something now in order to get something you really want later. From a financial perspective, that means saving money. You can open a bank account for your child to save, but a more tangible savings tool may be a clear container that they can watch fill with every coin they save.
“The reality is that you really need to start small,” says Grant Gallagher, director of financial well-being and brand communications for Affinity Federal Credit Union.
You may also have to explain what money is. “Do they understand that it’s a store of value?” Gallagher asks. Don’t let your children think that a “magic card” pays for the groceries. Explain that there is money behind every transaction.
Conversation Starters for Young Children
| What to say | When to say it |
| “It’s not in our family’s budget right now, and we are spending our money on other priorities.” | When a child asks why you won’t or can’t buy something. |
| “What would you like to buy, and should you save some money for later?” | When a child receives a gift of money or earns an allowance for chores. |
| “I have $30 to buy ingredients for dinner. Help me shop for the best deal.” | At the store. To help children visualize spending this money, give them real or fake cash to hold. As each item goes into the cart, have them hand you the appropriate amount. |
| “We can’t have/do both of those things. How can we decide which one to choose?” | Whenever you need to choose between two items. |
“Honesty is key,” Andrews says. When talking about family finances, “You don’t need to give too much information, (but) kids pick up on dodging a question or lying.”
Talking to Teenagers About Money
As children hit the teen years, they are ready to learn more advanced topics.
“You want to start digging a little deeper,” according to Gallagher. Discuss needs versus wants, and how society and businesses try to influence spending decisions. “We have so much marketing thrown at us,” he says.
Here are some of the topics to discuss with teens:
— Earning and budgeting: Parents should give teens opportunities to earn their own cash. That may be through chores, an allowance or a job outside the home. Link any money you provide to a task or chore. If your teen fails to do what’s asked of them, for example, they shouldn’t get their scheduled allowance. Help teens create a budget for how to save and spend their money, and make them responsible for some expenses such as activities with friends.
— Taxes: Your teen may be surprised when their first paycheck is smaller than expected. This is an excellent time to tackle the topic of taxes. Have them find their pay stub and review all the deductions. Explain that FICA taxes pay for the Social Security and Medicare programs, but some workers may get a refund if they paid more income tax than they owed during the year. Note that you generally need to file a tax return to claim a refund if you are owed one.
— Fraud and identity theft: Teach teens with cellphones to be wary of calls, emails or texts asking for personal information. Ask them to tell you if they get any communication claiming to be from a bank, credit union or the government. Then, review it together so you can explain how to identify a scam. Of course, you’ll need to know the red flags of scams yourself first.
“Money is a big part of all our lives, and we want to have a (family) culture where we talk about it openly,” Andrews says. Teens should feel comfortable bringing their money questions to their parents, and parents should emphasize that mistakes at this age are opportunities to learn rather than reasons for shame.
[How Much Should You Save In an Emergency Fund? Here’s What Financial Experts Say]
Conversation Starters for Teenagers
| What to say | When to say it |
| “Can you think of any ways to earn money to buy that?” | When a teen asks to buy something that isn’t in your budget. |
| “Let’s look at your pay stub together.” | When a teen gets paid for the first time. |
| “What’s going to be your plan for that money?” | Any time a teen receives unexpected money, such as cash for a birthday or graduation. |
| “Do you know how phishing scams work?” | Once a teen starts managing their own bank account. |
“As a society, we do not talk about money in families, or anywhere else, until there is a problem,” says Regina McCann Hess, a certified financial planner and president of Forge Wealth Management.
She suggests families normalize financial discussions to help teens become more confident and knowledgeable about managing money.
Talking to Young Adults About Money
As your child prepares to go out into the world — whether that be to college or the workforce — make sure they are ready to put all the previous lessons into action. Stress the importance of making smart goals for themselves and being self-disciplined enough to achieve them.
“These first years of employment are most critical for retirement,” Gallagher says. While it may not be a pressing topic for young adults, frontloading money into a retirement account gives compounding enough time to “work its magic,” according to Gallagher.
Here are some of the essential topics to discuss with young adults and college students:
— Retirement savings: Ask young adults whether they have a 401(k) or similar retirement plan at work. If so, encourage them to contribute enough to max out any match offered by their employer. If they don’t have access to a 401(k), an IRA is another option. Using a Roth IRA will provide them with tax-free money in retirement. Qualified withdrawals can be tax-free, but IRS rules and conditions apply.
— Smart use of credit: Credit cards and loans can be an easy way for young adults to get what they want without waiting, but debt can severely limit options later. Stress to children that making multiple monthly payments may mean no extra cash is available for other purchases, and high interest rates mean they are working hard simply to add to a big business’s profits. If a young adult already has debt, offer to help them create a debt payoff strategy.
— Job benefits: Remind young adults that a paycheck is only one part of employment compensation. They should also consider other benefits, such as insurance, retirement accounts and reimbursements, when weighing multiple job opportunities.
Parents should also advise young adults on how to handle extra money that comes their way. A three-way split is a good strategy, according to McCann Hess.
Whenever anyone gets a raise, she recommends directing a third of the extra amount to a rainy day fund, a third to a retirement fund and use the final third for spending. This method avoids “lifestyle creep” that can lead to people living beyond their means.
“You’re used to not having any money,” McCann Hess says. Rather than living large, she recommends young adults save more and max out their 401(k) if possible. “Future you is going to love me for this.”
Conversation Starters for Young Adults
| What to say | When to say it |
| “Do you know what the monthly payments will be and how long it will take to pay off?” | Any time a young adult is considering debt, such as student loans or financing a vehicle or other purchase. |
| “Does the job come with both the income and benefits you want?” | When an adult child is applying for their first full-time job. |
| “Did you sign up to contribute to a retirement plan?” | When an adult child starts a new job. |
| “Would you like help creating a budget?” | As a young adult prepares to move out on their own. |
Young adults need to practice managing their own money, which can mean letting them navigate mistakes on their own. “Be the coach, not the fixer,” Andrews advises.
Talking to Aging Parents about Money
Talking about money with your aging parents is just as important as discussing the topic with kids. However, it can be significantly more challenging.
“The key thing is you need to approach it with dignity and respect,” Gallagher says. “Be ready to be rejected.”
Money is a personal matter for many people, and often not one they want to discuss with their children. They may feel overwhelmed, angry or defensive at the thought that they need help managing their finances. It can also feel like a loss of independence.
The best approach for these conversations is to frame them in terms of offering a helping hand, rather than trying to pry or take over.
“Too many people don’t have a plan,” McCann Hess says, and you can frame the following conversations in terms of helping your parents create that plan:
— Estate planning: Older parents may not want to share specifics about what’s in the documents, but ask where you can find their will, power of attorney and healthcare designation forms. If they balk, assure them you’re not looking for details but only want to know where to find the documents in case of an emergency. If they don’t have these documents, offer to help them find a financial professional to create them.
— Long-term care: Many people want to remain in their home, but that isn’t always possible. Ask your parents where they would like to live if they need to move. Discuss how they will pay for that. Medicare generally does not cover most long-term care, although it may pay for limited short-term skilled nursing or rehabilitation care in some situations. Some seniors have long-term care insurance or life insurance with benefits they can use for long-term care expenses.
— Scams: Seniors are prime targets for fraudsters. Be sure your parents understand that scammers often use scare tactics and that no legitimate bank representative or law enforcement official will ask them to purchase gift cards or transfer large sums of money to “keep it safe.” Watch for signs that your parents are victims, such as a change in habits, an unwillingness to go out or evasiveness. These may also be signs of cognitive decline.
“We see situations that as a spouse becomes widowed, they may become vulnerable to someone bamboozling them,” Damsky says.
He recalls one client who wrote $20,000 in checks to someone to finance a film the scammer claimed to be making. The person tugged on the senior’s heartstrings and made them want to help, but it was a ruse to get money.
[What Is the Average American Net Worth by Age?]
Conversation Starters for Aging Parents
| What to say | When to say it |
| “How are you feeling about your money right now?” | As part of a regular conversation to gauge whether it is a subject your parent is willing to discuss. |
| “Have you considered when to start Social Security?” | Prior to age 62, as an opening to discuss Social Security claiming strategies and income in retirement. |
| “Did you hear [name of parent’s friend or relative] moved/passed away/is sick?” | When an appropriate example presents itself, use that as a springboard to have a discussion about your parents’ long-term care or medical plans. |
| “I read about a new scam going around…” | Regularly check in with parents to let them know variations of scams and emphasize that they can contact you if they aren’t sure whether a call, text or email is legitimate. |
“The game has changed, and you are there to help them navigate it,” Damsky says.
Approach conversations with aging parents with kindness and compassion, and handle them differently from conversations with children. Emphasize that you aren’t trying to take away their autonomy but want to ensure they are able to live out their golden years as they’d like.
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How to Talk to Your Kids and Parents About Money: A Generational Finance Guide originally appeared on usnews.com
