Do American Parents Talk About Money With Their Kids?

By Lindsay Frankel
Inside Subprime: August 10, 2020

U.S. financial literacy scores continue to drop, and without robust requirements for financial education in most states, parents are left with the responsibility to educate their children about money. Yet about one fourth of parents are very reluctant or extremely reluctant to talk about finances with their kids, according to a survey from T. Rowe Price. And nearly half said they aren’t taking advantage of opportunities to teach healthy money habits to their children. 

Children often learn through example, so they’ll pick up information from their parents’ financial habits even if money isn’t explicitly discussed. That’s why it’s important to model healthy financial behavior and look for teaching opportunities. Ultimately, your children will need to make important decisions about borrowing and spending, particularly when it comes to their education, and knowing how to save money will be essential to their success. 

Establish savings goals

Saving money is more motivating if it’s connected to a reward. If your child wants a particular item, use the opportunity to discuss how much they’ll need to save to buy it. For example, if they want a $20 toy and they get $5 allowance per week, help them understand how long it would take to purchase the toy if they saved their entire allowance versus how long it would take if they only saved a portion. 

Give kids the opportunity to earn money

Money that is earned is more likely to have value to kids, which will naturally precipitate savings behavior. About half of parents said their kids are required to earn their allowance in the T. Rowe Price survey. Many parents will give children household chores or tasks to allow them to earn their allowance. 

As kids get older, encourage them to join the workforce. Workforce participation is declining among teens, which is problematic because of the many benefits of holding a job in high school, including better money management skills. Furthermore, a study from Drexel University found that teens who work end up getting paid 20 to 25 percent more in their adult careers than teens who don’t. Teens who work are even more likely to graduate college. 

Teach kids to save a portion of their allowance

Start with three clear jars so kids can see money accumulate, and allocate money for saving, spending, and giving. Teach kids that they can choose to spend small amounts of money in the short term or save up for a bigger reward. If they don’t spend everything in their spending money jar, they can move it to the savings jar. And teach kids that giving, whether that’s donating to charity or buying a gift for a friend, can be rewarding as well. 

Open a savings account

Jars or piggy banks are a great start for young children, but you should ultimately introduce your child to the ins and outs of using a financial institution. Open a savings account at a local bank or credit union and teach kids to make regular deposits. Show them their balance each month, and explain to them how interest can accrue if they leave the money alone. You might also consider opening a separate checking account and getting your child used to using a debit or credit card. Involve them in the bill pay process when they get their first credit card. 

You should also have a savings account for your child’s education. Low and moderate-income children are more likely to attend and finish college when they have a small-dollar savings account that’s specific to their education. Even an amount less than $500 makes kids three times more likely to enroll and four times more likely to finish school. 

Hold family financial discussions

Experts say you should have regular discussions with your kids about finances. Rather than sit down for a one-time money lecture, make this a part of your everyday conversation. For example, involve kids in financial decisions such as which product to buy. Compare prices and features and explain why some items are more costly than others. Help them distinguish real bargains from advertised deals that aren’t good values. 

You can also create a budget for your back-to-school shopping trip and allow kids to make the decisions about what to buy with the money. Just be sure to offer them some guidance so you don’t leave the store with five pairs of shoes and no notebooks. 

As much as you feel comfortable, you can also have discussions about your own savings goals. It’s important to model good financial planning, so explain to your kids that you’re saving for a vacation or putting money in their college fund. Communicate that you will have to make sacrifices to reach your goals. You can also talk to your kids about the dangers of taking on too much debt. Admit your own mistakes and explain how you corrected them. 

Finally, when your kids have questions about money, you should view that as an optimal opportunity for interactive teaching. Research suggests a dialogic method of teaching kids about financial concepts is best. 

Utilize financial resources

Only 57 percent of adults in the U.S. are financially literate, so many parents may have difficulty understanding financial concepts themselves. If you don’t feel confident teaching your kids about saving and investing, utilize resources like books and videos, along with the following websites:

Practicing good money habits when kids are young can lead to better financial outcomes later in life. It’s never too young to start; even toddlers can learn basic money concepts. Remain open with your children about financial topics and regularly involve them in financial choices. 

To learn more about savings and financial literacy, visit the personal finance literacy and savings resources available at OppU. For tips on tackling debt, check out the OppLoans Guide to Boosting Credit While Paying Down Debt.

For more information on the middle income consumer, subprime loans and payday loans, see our city and state financial guides including states and cities like California, Texas, Illinois and more.