It might be challenging to conceive, but the financial patterns and habits that shape our children’s lives are largely established during their elementary school years. Surprisingly, by around the second grade or at age 7, a time when we’re still preparing their school lunches and watching cartoons alongside them, our children have already developed many of the thought processes that will significantly influence their financial capabilities as adults.

A research study conducted by the University of Cambridge, titled “Habit Formation and Learning in Young Children,” supports this notion. The study underscores that foundational concepts linked to future financial behaviors—such as budgeting, delayed gratification, and saving—typically take root during this period.

Furthermore, the University of Cambridge study asserts that a child’s growth and learning are profoundly shaped by the physical and social environment in which they are raised. The study emphasizes that children, as natural social learners, effortlessly absorb cultural practices and progressively assimilate values, attitudes, standards, norms, knowledge, and behaviors that contribute to their financial well-being.

In simpler terms, your children observe your financial behaviors, patterns, and attitudes, and they learn through imitation from a very early age. The societal context also molds their economic beliefs, attitudes, and values, resulting in varying levels of financial knowledge and behavior.

While it might not come as a groundbreaking revelation that as parents, we are essentially equipping the next generation to manage their finances, it remains a daunting reality that a child’s financial mindset takes shape at such a tender age—a mindset that can be challenging to alter once established.

Guiding Kids Toward Financial Wisdom Before the Age of 10
As parents, this can feel overwhelming. Nevertheless, the encouraging news is that instilling strong, fundamental financial habits in young children can be a relatively straightforward endeavor—and even an enjoyable one, depending on your approach. Financial experts dissect the practical implications for parents in their day-to-day lives and provide insights into how to raise financially astute and capable adults.

Significance of Conversations at the Dinner Table
At the core, children absorb a great deal about personal finance and money management styles by simply listening to the discussions of the adults around them. Although they might not grasp the intricacies at ages 5, 6, or 7, they do pick up on the emotions linked with financial conversations and how money impacts the attitudes and actions of the adults they observe. The crucial takeaway here is that they might internalize these same emotions and behaviors as they mature.

Carrie Casden, a money coach and the founder of Summit Financial, emphasizes the impact of modeling and dialogue at the dinner table, particularly with young children. She underscores that children as young as 7 start to sense the energy and tone of these conversations.

This implies that reducing money-related arguments in front of children and steering clear of discussions saturated with financial stress is essential, to some extent.

Imparting the Right Messages
Alongside avoiding intricate financial discussions while children are listening, Casden proposes that parents thoughtfully choose the conversations they do engage in about money with their young children. It’s crucial to convey the appropriate messages during these exchanges.

A significant mistake, as pointed out by Casden, is when parents say, “We can’t afford those sneakers you want.” Instead, the message should emphasize different priorities: “We’re choosing to prioritize savings” or “We don’t want to overspend.” The objective is to teach children to be mindful of the finite nature of money.

Furthermore, stating “We don’t have enough money” sends a distinct message compared to saying “We’re choosing not to spend money that way” or “I don’t believe that’s a good value.” The former portrays a lack of control over finances, whereas the latter communicates the idea that deliberate financial choices can yield desired outcomes.

Brittney Castro, a certified financial planner from Mint, cautions against using language that implies money is in control, as it can foster associations of stress and financial anxiety in children.

Incorporating Money into Daily Life
In today’s world, where technology and digital transactions dominate, children often fail to witness actual money being exchanged for purchases. This can lead to a lack of understanding regarding the value of money or even a complete disconnection from the reality that real money is used for transactions. This disconnect could potentially harm them in adulthood, leaving them without a meaningful grasp of finances.

To counteract this trend, consider openly discussing routine financial transactions as they occur and transforming these instances into teachable moments.

Jennifer Seitz, an educational content lead for Greenlight, a debit card for kids, suggests making a habit of explaining these moments audibly. Whether it’s choosing the best price at the grocery store or saving up for a treat, these discussions unveil the critical thought process behind money choices, even if the physical money isn’t visible.

Capitalizing on Sales
Teaching moments can also arise when making purchases on sale. Casden recalls how she engaged her daughter in the practice of buying items on sale, emphasizing the idea of getting more value for the same amount of money. These experiences contributed to her daughter’s adeptness at making budget-conscious decisions.

For young children, you might explain that they could acquire three toys for the price of one by choosing items on sale.

The essence here is to integrate your financial actions into daily conversations, making them a natural part of life. By doing so, you shift the focus away from the emotions tied to money and instead emphasize the practicality of using money and the decision-making process.

Revealing Your Savings Endeavors
Instilling a propensity for saving in children from an early age is a crucial parental responsibility that significantly contributes to nurturing financially competent and successful adults. Various methods can be employed to convey this lesson, and they need not be overly intricate.

Kelly Lannan, a senior vice president at Fidelity Investments, stresses the importance of making saving visual and tangible, even for young children. Even at ages as early as 3 to 6, children can comprehend the concept of having a goal and witnessing progress toward it, provided they can visually track it.

A practical approach could involve giving children a modest, regular allowance, coupled with conversations about how they intend to manage their money. Rather than just handing over money without discussion, engage in a dialogue about their aspirations for the money.

You might suggest they store their funds in a piggybank, enabling them to witness their savings grow and giving them the opportunity to use their savings for small purchases. This simple practice cultivates principles in children that lay the foundation for healthy savings habits later on.

Promoting Budgeting Skills
Aside from emphasizing savings, providing an allowance can also be an avenue for teaching children about budgeting and spending management. This goes beyond mere explanations and actively involves kids in the budgeting process, resulting in a more impactful lesson.

Brittney Castro highlights that teaching kids how to budget helps them differentiate between needs and wants, helping them avoid impulsive purchases they may regret. You can encourage them to allocate their allowance into categories like needs, wants, savings, and charity. Designated containers or piggy banks for each category can be used. This method acquaints them with the concept of prioritizing their funds based on current values. Teaching budgeting not only imparts financial skills but also nurtures essential life skills, such as managing finite resources.

The Essential Takeaway
Given that children learn significantly through observing their parents, it is imperative to model healthy financial behaviors from an early age. This involves normalizing conversations about money and breaking down lessons into manageable, real-life situations. Ultimately, if parents neglect this effort, children are likely to receive little positive guidance on financial matters from other sources. Therefore, it falls upon parents to set the groundwork for their children’s financial literacy and well-being, laying the foundation for a future of informed and responsible money management.