There are few things parents dread more than "the talk." You know the one: Discussing finances with your children.

By Alex Apatoff
June 03, 2019 01:33 PM

No Stupid Questions is a PEOPLE series that provides expert answers to your toughest (and funniest, and most embarrassing) parenting questions. Check out more here and send yours to NoStupidQs@peoplemag.com.

One of the conversations parents most dread having with their kids is about finances. Whether it’s because it’s difficult to make engaging, it feels taboo, the parent doesn’t feel they understand the topic sufficiently to teach their child about it or the parent doesn’t feel their finances are in order enough to give lessons, it’s a topic that is frequently not taught early enough – or thoroughly enough – and leads to further generations dealing with financial illiteracy.

The problem? Staggering statistics facing the U.S. population around money, which include the fact that 44% of Americans would have trouble coming up with $400 to cover an emergency expense, and a third of Americans have $0 saved for retirement. Regardless of how intimidating it might seem, it’s so important to have conversations with your kids about money early, in an approachable way, and continue them into their young adulthood.

Says Liz Frazier, the author of Beyond Piggy Banks and Lemonade Stands: How to Teach Young Kids About Finance (and They’re Never Too Young), “Adults think that to understand finance you have to understand really complex terms, but you really don’t. You just kind of need to know the basics to understand finance and to be financially healthy … There are opportunities every day for parents just to talk to their kids about money the same way they would talk to their kids about anything else, like smart nutrition choices and safety.”

There are apps and websites dedicated to making it easy, as well as financial products like the Greenlight card, designed to help parents set spending limits and add allowance automatically. Greenlight’s CEO, Tim Sheehan, answered our questions about how to make conversations with kids about finance as pain-free as possible. As Frazier notes, “It’s just as important for adults to understand finance as kids, in order to be financially healthy and reach their goals.” Read Sheehan’s answers to common questions below.

When is the earliest you can start talking to kids about money?

“As soon as your kids are old enough to spend money, you can start talking to them about saving it. Kids who learn the importance of smart money management early on will be better equipped to make smart financial decisions in the future.”[Editors’ note: Get Frazier’s tips on giving kids allowance here!]

What are some simple concepts you can use to explain it to them?

“Make saving a habit. Give your kids a savings account and talk to them about how to manage it: When to deposit, how, and why. When they earn or receive money–whether from gifts, allowance, or chores–encourage them to save some of it for later.

Money is earned. When kids get allowance, or earn financial rewards in exchange for chores or work outside the home, they learn the value of a dollar in terms of the work they put in.

Compound interest isn’t necessarily a simple concept, but it’s incredibly important for building wealth. Greenlight offers ‘Parent-Paid Interest,’ so parents can choose to pay their own “interest rate” on kids’ savings to exaggerate the point of earning interest. The money grows more quickly so kids learn about compound interest and the value of saving versus spending.” [For younger kids, you can simulate this by adding money to their “save” jar as soon as they hit a certain target.]

How can I demonstrate good financial habits in an age-appropriate way?

“For kids 5 and under, parents can simply talk about money and start to lay the foundation for raising financially-smart kids. Just as you describe your activities as you go about your day with your children, tell them when you’re putting money aside for savings. When they’re born, you can start a savings account for them. As soon as they’re old enough, you can show them the account and instill the importance of saving early on.

Kids between 5 and 10 can grasp the concept of spending and saving. You can teach them the value of a dollar by giving them ways to earn money and letting them decide how and where to spend the money they earn. Talk to them about the trade-offs of spending money on gaming or restaurants when they might also want a new pair of shoes or need to save for a class trip. When you’re out shopping, talk to your kids about deals and sales tax. When you’re dining out, talk about tipping. The earlier kids start to learn the importance of costs and budgeting, the more prepared they will be for future financial decision-making.

As kids get older, between 10 and 15, they start to have more expenses. Learning to manage a budget and save for future expenses becomes more important. Give them more responsibility for covering living costs. Let them budget for when they want to eat out with friends or go on a school trip. Give them more ways to earn so they have more money to manage and budget. By now, kids may have enough money saved up to start talking to them about investing. Explain the benefits of investing and earning interest over time.

Kids heading to college should be budgeting for their future. Make sure they understand the day-to-day costs of living on their own so they know to save for living expenses. Explain the importance of budgeting for rent, car maintenance, doctors appointment co-pays, and other life expenses.”

What are the biggest mistakes parents make when talking to kids about money

“A recent survey by T. Rowe Price revealed that two-thirds of parents express reluctance to talk with kids about money. That’s concerning because the biggest mistake parents can make is not talking to their kids about money and the importance of smart money management. All parents have the opportunity to prepare kids for their financial future.”

Which financial programs do you recommend parents start for their kids and at what age?

“Learning to earn and manage money early on provides kids a foundation for healthy financial lives. The Greenlight app provides a space for parents to manage chores, help set savings goals and provide a way to set money aside to give to charitable foundations.”

[Editors’ Note: Everything you need to know about opening a college savings plan is right here.]

Which financial concepts should kids master before they go to college?

“Budgeting is the most important concept to master by 18. When kids turn 21, they start to receive credit card and loan offers, and it becomes easy to spend money they don’t have. They need to have learned how to manage money and spend within their means (because as a young adult, they likely won’t have a lot to spend), to delay instant gratification, and ensure they have money saved for when they need it most.”

How can parents improve their own financial literacy to enable them to teach their kids better?

“Many parents are motivated to instill healthy financial habits in their kids precisely because they recognize gaps in their own education. Naturally, we are big believers in putting technology to good use for improving financial literacy and health. Apps for adults that we admire include Mint for budgeting, Acorns for investing, and Credit Karma for understanding their credit profile.”

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