If you’re the parent of a preschooler, you’re probably focused on teaching your kid the basics: The alphabet, sharing, why we don’t put food up our noses. But should those first lessons include tips for setting your preschooler up for financial success? The answer is “yes,” according to New York Times bestselling author Beth Kobliner, whose new book Make Your Kid a Money Genius (Even If You’re Not): A Parents’ Guide For Kids 3 to 23 hits stores Feb. 7.
A 2013 study from Cambridge University found that for most children, basic money habits are formed by the age of 7, and a separate study from the University of Wisconsin-Madison showed that even preschoolers can grasp simple money concepts like exchange and value, so it makes sense that we should take advantage of these formative years to pass on as much financial savvy as possible. But the truth is, many of us are hesitant to talk to our kids about money, whether it’s because we don’t feel qualified to dispense advice, or because we’ve internalized the idea that discussing these matters with children is somehow taboo. “And that’s a problem, since research shows that parents are the number one influence on our children’s financial behavior," Kobliner wrote. "So having these conversations before our children start school is important.”
Of course, those conversations should be simple and age-appropriate. You’re not going to talk to your 3-year-old about the stock market, but that doesn’t mean you can’t introduce them to the concept of investing — even if you don’t know all that much about the topic yourself. Here's how you can make sure those conversations are getting your little ones started off on the right foot, economically speaking.
Even at the age of 3, kids are old enough to understand that money is more than just something in mommy’s purse. “One tried-and-true technique is to find three jars and have your child label one to save up for things to buy in the future, one to buy stuff right now, and one to share with other people who need help,” Kobliner wrote. How much gets saved isn’t important — just make sure that your child puts money away on a consistent basis, whether it’s birthday money from a grandparent or even change he found buried in the couch cushions.
You probably tell your kid that you go to work so you can earn money, but small children don't necessarily make that connection. "Though you might tell your kid that you are paid to work ... it's more effective if you can show them," Kobliner said. If you can take your child to work with you one day, that’s a great way to demonstrate the concept; if that’s not possible, take her by your workplace during off hours so she can visualize what it is you do all day and where. Then, at home, show her that everybody has a “job” to do by enlisting her help with small household chores like putting away her shoes or helping to sort the recycling. She may not complete each task perfectly, but she will start developing a work ethic.
It’s not uncommon for preschoolers to think that when you use your card to pay for things at the store, they’re somehow “free” — which, as you know, is not the case. Your child might still be too young to understand interest rates and credit scores, but she still needs to know that paying for something with credit still costs money. Kobliner suggests this exercise: When you’re at the store, tell your kid to pick out a small-ticket item around the one dollar mark. Next, take out four quarters, a dollar bill, and a credit card, and explain that you can use any of those methods to pay.
The distinction between actually needing something and just really, really wanting it can be almost impossible for little kids to understand — but being able to make that all-important call is crucial to learning how to spend wisely. To get the point across (and avoid screaming fits in the checkout aisle), Kobliner suggests walking the aisles of a store with your child, pointing at certain items, and asking them, "Want? Or need?" Let him throw the "needs" in the cart, and leave the wants on the shelf.
OK, so maybe your kid is a bit young for a trip to Wall Street. You can still teach them about the concept of investing by relating it to something concrete and easy to understand, like by planting a seed in a flowerpot. “Talk about the time it takes the plant to grow, and the fertilizer and water that you need to ‘invest’ in it so that you get the payoff of a beautiful sunflower or a ripe tomato at the end,” Kobliner wrote.
Whether it’s a pair of expensive shoes or a big-ticket item like a new car, we spend much of our adult lives working and saving up to buy the things we dream of owning. Help your child to develop patience by pointing out the benefits of waiting: Remind her that soon, it’ll be her turn on the swing, or that the car ride will end and you’ll be at the zoo soon. “It’s also good to talk about waiting for far-off goals such as a birthday or a holiday, and how great it is when the day finally arrives,” Kobliner wrote. “To help pass the time, you can discuss what will happen at the birthday party, who will attend, what games you’ll play, and what the theme will be.”
This post is sponsored by Make Your Kid A Money Genius (Even If You're Not) by Beth Kobliner.