Sharing your salary and spending habits with others has always been very taboo. But, is there ever a time to let the proverbial cat out of the bag and share that information with your children? We say – Absolutely! While we don’t recommend sitting down with your 5-year-old and trying to explain the family budget, we do think once they hit their pre-teens is a good time.
Before sharing any information, make sure your child understands the importance of keeping this information to themselves. Family business should be confined to just the family. It’s also a good lesson in showing your children that you trust them with sensitive information. Conversation is good, but you can probably skip sharing your tax returns.
Money is a source of mystery for many children. They understand it’s power and usefulness, but as they get older and start to understand it more, they can have a lot of questions. In the past, the normal response was “None of your business” when it came to these types of questions. However, shielding children from the realities of the financial world really doesn’t make sense anymore. Especially considering the cost of college and the amount of debt many young adults graduate with.
Children see and hear more than you realize. They can start understanding the grocery bill as early as 6 or 7, so making a point to explain sales, coupons, and your weekly budget is a great place to start. Another excellent opportunity is to explain the cost of your children’s extracurricular activities. If your child wants to take dance lessons, music lessons, and still go to amusement parks or the movies – show them the weekly or monthly cost of all their activities. If you need to cut back on expenses, have them be part of the decision-making process. Let them choose which activities to keep or find a way to do odd jobs to raise money to pay for it.
Once they hit their teens, sharing your salary and the family budget will better prepare them to make sound financial decisions as they get older. It’s also best that they hear the information from you versus finding it online – and yes, you’d be surprised what you can find out on line these days. If you work in a public sector, your salary is probably posted on the internet.
Many kids don’t understand the difference between Gross and Net pay or why you need to pay taxes. Explaining payroll taxes, Social Security, and Health Insurance are all important to-do’s when it comes to talking about money.
When explaining your budget, always start with the most important items first and why you should pay them first– like the mortgage, car payments, and insurance. Stress the importance of paying off debt like credit cards and keeping a solid credit score. It’s also a great opportunity to teach them the rule of thirds with any money left over.
It’s never easy talking about money, but starting your children off with an understanding at a young age will only help them better manage their finances in the future. Have you had any successes with explaining your budget to your children? Or maybe some Do Not’s? We’d love to hear them.