Talking about Money with Kids
All of this has led to him asking a lot of questions lately like, "If it's only a dollar, how come they are asking for $1.08?" or "If I only have a $5 bill and it only costs a dollar, what do I give the cashier?".
I love the discussions that have happened because of his curiosity, but it made me wonder about what is age appropriate for me to talk about with him. Do I talk about paying tax and why we pay it? Do I go into a long explanation about how our debit card is really using our money that is in the bank? That's when I discovered T. Rowe Price's Family Financial Hub which is a great resource for how to talk about money with your kids.
After visiting the Family Financial Hub, I spoke with T. Rowe Price who offered me additional advice on terms to talk to B about from now through age 15.
Here's what I learned:
Terms to Teach Your Child by Age 5:
*How to Set a Savings Goal – What you want to buy, when you want to buy it, and how much it costs.
*Bank – A safe place to store your money where you can earn a little extra money (interest) for keeping it there. They give you checks and debit cards so you can spend your money easily.
*Bills – Bills are notes that let us know how much money we owe for something we used. It is important to be responsible and pay bills on time so we don’t get charged an extra fee.
*Trade Off – When you have a savings goal, sometimes it is necessary to make difficult decisions about whether to buy an item or to keep saving your money. These are called tradeoffs. For example, maybe you want to buy two coloring books, but instead just buy one and save the rest of your money for your savings goal.
Terms to Teach Your Child by Age 10:
*Interest - Can be an amount of money an investment earns or an amount of money that is added to the money you borrowed. If you borrow money, you have to pay interest on top of what you use (credit card).
*Saving for college - Try to save as much money as you can for your future.
*Time Horizon - The number of years until you will spend your money. This determines how your money should be divided up between investments.
*Inflation - The increase in price of goods and services over time.
*Taxes - Money we give to the government to help pay for public programs and services. Taxes can be small fees that are added to purchases and can also be subtracted from paychecks.
Terms to teach your children by age 15:
*Investing- Putting money into assets (like stocks, bonds, mutual funds, etc.) to help you reach your financial goals.
*Asset allocation- how your money is divided among stocks, bonds, and short-term investments.
*Diversification- having lots of different kinds of investments (different types of stocks, different types of bonds, etc.). For example, if you invest in skateboard stock and kids stop buying skateboards, you could lose all the money you have invested. Instead, if you invest money in skateboards, pizza, and computers, and kids stop buying skateboards, you might lose only the money you invested in skateboards—not all of it. Diversification cannot guarantee that your investments will make money or protect against loss if the market goes down.
*Stocks- a share of a company that is sold to the public. Companies sell stocks to raise money to finance business operations. Stock prices can change daily.
*Bonds- an asset issued by the federal government, state governments, or corporations. When you buy bonds, you are lending your money to the organization. Bonds generally pay interest (usually more than a savings account) every six months and you receive the original amount you loaned the organization plus interest earned at the end of a specified time. Unlike a savings account at a bank or credit union, bonds are subject to risk—which means you could lose some or all of the money you invested.
I think these guidelines are so helpful. It gives me an outline of what and when to talk about different concepts with B. At the T. Rowe Price Family Financial Hub they have more tips, videos, and printable activities that make teaching our children about money easier. They also offer The Great Piggy Bank Adventure - an online game for kids that helps teach these different concepts. Check it out!
This post is sponsored by T. Rowe Price, but this post expresses my own thoughts, opinions, and experiences.