Even if parents haven’t planned to have conversations about money with their children, the subject will inevitably come up. Whether it’s an eight-year-old’s request for a new Wii game or kids’ penchant for adding goodies to the grocery cart, parents will inevitably be presented an opportunity to explain to their children why they can’t have everything they want.
While parents may think they know the right things to say when it comes to teaching their kids about money, here are five popular myths that may be steering parents in the wrong direction:
Myth #1: Buying your child one stock is a great way to teach them about investing.
A key tenet of successful investing is having a mix of stocks, bonds, and short-term investments appropriate for your goal’s time horizon and your risk tolerance. That’s why buying children one stock to watch over a couple of weeks can be misguided and likely distracts them from learning the importance of diversification and long-term financial planning.
If the stock goes up, for example, the child may conclude that investing is about picking hot stocks and “playing” the market. Conversely, if the stock fails to perform well, the child could conclude that investing in stocks is always a bad idea. Of course, diversification cannot assure a profit or protect against loss in a declining market.
Myth #2: Money can only be dealt with as a serious subject.
If your kids roll their eyes when the somber “money talk” comes up, your messages may be difficult for your kids to remember, if they are even paying attention. Talking about money in a fun way, however, can give your messages more of an impact. One way to do this is to play The Great Piggy Bank Adventure®. T. Rowe Price collaborated with Walt Disney Parks and Resorts Online to produce this free online board game, which conveys basic financial concepts in a way that is engaging and easy for kids to understand.
Myth #3: Children should be taught to save “just because.”
Parents and children should set specific goals when talking about saving. By choosing a goal and saving toward it, children will better understand the trade-offs and will learn to make better spending decisions. Do they buy an ice cream after lunch or save for that new bike?
Myth #4: I need to be a financial expert to talk to my kids about money.
Many parents avoid money discussions because they do not feel they understand the subject themselves. However, parents don’t need to understand all the complexities of the economy to explain basic financial concepts, just as you do not need to understand how a car engine works to be able to drive. Focus on the basics – setting goals, and saving and spending wisely are lessons any parent can convey.
Myth #5: Giving an allowance is the only way for children to experience managing money.
There are a number of ways for children to gain experience with money. In fact, according to a recent survey by T. Rowe Price, only 48 percent of parents surveyed give their children an allowance. Some parents give their children a weekly budget to work within. Other parents choose to help their children (of appropriate age) find jobs like a paper route or babysitting. Many children receive money from various sources for birthdays, odd jobs, and even losing teeth. Use whatever ways your kids receive money to teach them about making money decisions.
Dispel these myths and start the money conversation with your kids early on. While the eight-year-old may not stop obsessing over the latest Wii game, he might start talking about how much he’s saved toward it, rather than asking Mom to open her wallet.
Stuart Ritter, CFP® is a financial planner at T. Rowe Price and the father of three young kids.
T. Rowe Price and Disney Enterprises, Inc. are not affiliated companies.