Few people are born financially savvy. We learn about money management through observation and imitation, which means our parents' and caregivers' attitudes toward money shape our own financial futures.

"It's important for parents to realize that kids are curious creatures — tiny sponges for information," says Erika Rasure, Ph.D., assistant professor in the online MBA in financial services program at Maryville University. "Parents should talk with their kids frequently about money and how it is used in their day-to-day lives."

It's a good idea to start the money conversation by the time kids are 7, if not sooner. Why? Because research suggests many of our behaviors that influence how we manage money — things like our ability to plan ahead and delay our own gratification — are largely set by that age. And habits get harder to change as we get older.

So, how do you start talking to kids about responsible spending? "Explaining simply what you are doing with money as a parent — and why you are spending on the things that you are — is an amazing first step toward helping a young person become financially literate," says former financial advisor Brilene Faherty. So, for example, you might talk about why you're using a credit or debit card instead of cash at the gas station, or explain your decision-making process while shopping for groceries. The key is to start helping them make the connection between financial decisions, personal priorities, and quality of life early on.

"Maybe health is really important to you, so you're willing to spend a little more on an item that is made with better ingredients," Faherty says. "Or maybe you value free time, so a few more expensive, but pre-prepared items make their way into the basket."

Leslie H. Tayne, financial attorney and author of Life & Debt: A Fresh Approach to Achieving Financial Wellness, says that teaching kids the importance of saving is crucial, because "a kid's first instinct is to spend money as soon as they get it." She suggests starting lessons about savings with something like a big item your child works toward — an electronic, a toy, an expensive pair of shoes, etc. "When your kid gets money, discuss how much of it they should spend, and how much should go to savings," Tayne says.

A little incentive for saving goes a long way. "Make a deal with your kids that if they can save half of what they make from allowance or are given as a gift, that you'll match it at the end of the year," Rasure suggests.

Before your child gets a job, their income streams are likely to be limited to financial gifts on birthdays and holidays, plus any pocket money you give them. How much and how often they receive cash is entirely up to the parent, Rasure says. However, she believes the healthiest allowance is one that has to be earned.

"Establishing good financial behavior means driving home the point of age-appropriate 'sweat equity,'" Rasure explains. "Each of my kids has a chore chart labeled 'dishes, laundry, toys. My 3-year-old is responsible for putting the dishwasher tab (supervised my me) in the dishwasher — after his 5-year-old sister rinses the dishes in the sink. If, at the end of the week, they've hit all of the categories on their chore chart, they both get an equal allowance of $5. I keep it even to avoid fights."

When your child becomes a teenager, it's a good idea to open a bank account for them or encourage them to start making and saving their own money, Tayne says. "Work with your child as they learn the ins and outs of budgeting and money management," she advises. "Begin to show them the more 'adult' side of money as they begin to ease into that world and prepare to manage their own finances."

It might help to ask your teenager to come up with a list of things they want for their own future, Faherty says. Encourage them to ask questions like: Where does future-you live? What do you do for dinner every night? What trips do you want to be able to afford? What activities do you want to do and how much do they cost? These exercises can facilitate the kind of thinking necessary for budgeting and planning long-term.

"The bottom line is that focusing on the 'why' will motivate kids to stay involved in the 'how' of each decision throughout their financial lives," Faherty says. "Setting kids up for financial success really means setting them up to be involved in and curious about financial topics. That way, no matter what the best practices are when it actually comes time to think about things like student loans, 401ks, mortgages, or 529s, they understand what matters to them as an individual and feel ready to get started."

Rasure likens the money talk to the sex talk. "Keeping an open dialogue about money in your home and using money as an interactive learning tool helps diminish the taboos that still exist about money," she says. "If not addressed appropriately and at the right times, money has the potential to be a confusing or shameful topic at some point when your child is not prepared to use it."

It's important that the talk is a two-way conversation — not a lecture, Tayne says. Encourage your kids to ask questions about spending and saving. That doesn't mean you have to disclose your family's entire financial situation if that's not something you feel comfortable doing. And while you should do your best to answer their questions, don't be afraid to defer to other expert sources. Most importantly, never make money a negative topic or the basis for an argument.

This is an ongoing conversation, so check in with your kids regularly and ask if they have any questions about money, Rasure says. "You'd be surprised what they will ask. This sets a healthy precedent of 'no question is too stupid' and will help your kids trust you when it comes to asking harder questions later."

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