Talking about money can be hard. However, Morningstar senior behavioral scientist Sarah Newcomb says shielding your kids from money discussions could put their financial future at risk.
Here are three tips to begin having money conversations with them.
First, teach your kids the rule of 72 to explain how compound interest works.
By dividing 72 by an annual rate of return, kids could learn how many years it could take for their money to double. And this rule could also show them how many years it might take for their money to be cut in half by inflation or paying interest.
And keep teaching them the rule of 72. They could learn why investing a small amount of money in their 20s is much more valuable than larger amounts in their 40s.
Second, give them a budget.
They may ask to redecorate their room. Turn that request into a teaching moment. They could learn the importance of stretching their dollars when they’re personally invested.
Third, use everyday moments to help your kids understand money from a practical sense. If you’re buying a house or a car, explain to your kids what you’re doing and why. Or better yet, explain the finances behind the next family vacation!
The bottom line is: Discuss money with your kids early and often. It could give them the experience and confidence they need to avoid making financial mistakes as they get older.