TENCU Chronicles

Children are keen observers, absorbing everything around them, from the curse words you accidentally let slip to the family secrets you thought were well hidden. Surprisingly, early in their development, kids also pick up on financial dynamics – who possesses wealth, who doesn't, and how your household manages money compared to others. They can sense stress and overhear arguments related to finances. Every financial decision you make serves as a model for them. "You are a mirror, and your kid is a sponge," notes Jordan Wexler, co-founder and CEO of EarlyBird, a registered investment advisory company facilitating custodial and college savings accounts for kids.

Whether you're a parent, relative, or close family friend, there's a significant responsibility to model positive money behavior for the children in your life. This process begins by understanding your approach to money and then imparting age-appropriate lessons.

Establishing Household Values: Teaching someone else about spending, saving, and donating money becomes challenging when your goals and priorities are unclear. Consider setting an annual budget for charitable giving or saving gradually for future expenses to avoid credit card debt. These decisions should align with your actual values, involving both parents in financial decision-making, according to Kelly Palmer, founder and chief wealth officer at The Wealthy Parent. Palmer emphasizes the importance of children witnessing women actively engaged in these financial conversations. Confidence in your decisions makes explaining your thought process to your child easier and opens avenues for thoughtful discussions.

Involving Kids and Providing Context: Trips to the store, calculating tips at restaurants, and planning vacations are all opportunities to discuss money and values. While brushing off your child's questions during a rushed errand might be tempting, revisiting the topic later when things are calmer can be effective. Providing context helps kids understand the reasoning behind specific choices, such as buying a more expensive toothpaste for sensitive gums or opting for day camp over sleepaway camp to afford a family trip during winter break. Involving kids in daily financial decisions demonstrates the complexity of seemingly simple choices, providing valuable lessons for their future.

"One of the hardest and easiest things we tell kids is 'we can't afford that,'" says Mary Bell Carlson, a certified financial planner and president and founder of Financial Behavior Keynote Group. She emphasizes that it's a missed opportunity not to converse about such moments.

Acknowledging the Comparison Trap: Children notice disparities in how others live – a cousin with more toys, a friend in a bigger house, or a neighbor enjoying annual vacations. When faced with requests for things you hadn't planned for, instead of dismissing them, engage in a conversation. Ask your child why they want a particular item or experience and discuss the associated costs. Older kids might be willing to save their allowance for a big purchase, providing a valuable lesson in long-term saving. The key is to show your kids that they can approach you with money-related questions and be taken seriously.

"At the end of the day, it's not really about money. It's about the emotional connection with your children," says Carlson. "It's about showing you care regardless of what you do or don't have.