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Kids notice everything.  Olivia will come home and ask you why her best friend has new Adidas Yeezy Boost sneakers while she is wearing her older siblings hand-me-down Nikes. At some point one of them is sure to ask you, “How much do you get paid?”, “Are we rich?”, or “Why can’t we afford this?”. They are all good questions.  Encourage them. Use these questions as a jumping off point to discuss family values, family history, and family goals. Helping your kids build the skills to discern how and where to spend their money is one of the core skills we as parents sign up for.

Is there a “best” time to start talking about money with teens?

The answer is yes – right now. Rather than wait for the perfect time, begin talking casually about money at the dinner table at a level your kids can understand and make talking about money a regular topic of conversation. When you are driving to get gas, talk about why you prefer one station over another. My dad always filled up at the station across town that sold the cheapest gas and talked about how he planned his errands so that he was over there when he needed to fill the tank. When you are at the grocery store, discuss why you’ve chosen one brand over another or decided not to buy something.

Starting from when they are young, creating an environment the kids can ask questions and parents can share information, views and values in bite-size portions is a way to build financial knowledge over the course of their lifetime with you.  Being comfortable with the topic, developing skills around how to talk about it, how to find answers to their money questions, and having background on how their own family handles money will be useful once they leave home and begin to manage their own money.

Creating a money history

All these ice-breaking conversations will create a family money history that can be a powerful part of every family’s personal history.  We’ve all heard stories about a successful relative that came over from the Old Country with $5 in his pocket and went on to achieve significant financial success, or your dad that got an orange in his Christmas stocking and thought that was true abundance, or the family that saved all their extra coins in a jar and each time the jar filled up they would deposit it into their college savings account.  Try keeping a list of money terms on your refrigerator or kitchen bulletin board with money terms everyone hears when listening to the radio, watching TV, or reading the news. For example:

  • What is the stock market, a stock, an equity, a bond?
  • What is savings, an investment, or a stock portfolio?
  • Are we a frugal family? What is the difference between being frugal or cheap?

Keeping and adding to a list of financial terms and assigning the words to your children to research based on their age is another way to engage them in proactively developing their financial knowledge.

Spending and Investing: The value of allowances

An allowance is also a great way to begin a money conversation and develop money muscles.  My family started with $1 a week for every year of age from about 5 years of age. Five years old, $5. Fifteen years old, $15. There were some guidelines.  We suggested they save about 20-50% for some future purchase or goal. We suggested they give about 10% to others in some philanthropic manner. However, it was not mandatory.  They also had a myriad of chores. Taking out the garbage, doing their laundry, making their beds, keeping their rooms tidy. Making and packing their own lunches and snacks. Feeding the turtle!  Chores are mandatory but not tied to their allowance. They had to do chores because we believe they are part of our family unit and as part of the team are expected to contribute to the running of our household.

Once they were in high school we raised their allowance to include money for bus fare to school and around town and the occasional lunch out as well as other expenses they could manage themselves. They could use their money to buy something they wanted that we parents did not want to pay for. If they wanted an upgrade to a fancier sneaker or didn’t want to wait for the bus they could use their allowance for the better brand or take Lyft.  They could pack their lunch everyday which solved for lunch or could choose to spend their money on a deli sandwich. Allowance was a way for us to not have to provide money for small things they could navigate and choose themselves and as they got older we increased their allowance so that they had the money to make those decisions.   It was a way for them to start to understand, for themselves, why it might be a good idea to save, invest, or share some with others.

We discovered a few things which I’m guessing most parents will already recognize.  When my daughter came to me asking for sneakers I suggested two options-one, she pay for the difference in price between what I was prepared to pay for herself with her allowance or savings or we could consider halfsies plus an extra chore.  Typically, the sneakers suddenly weren’t so necessary. Not a bad way to deflect the whining and negotiating at the sneaker store.

As for saving, this is often a good way to encourage it in real time.  If Jacob needs $50 and only has $25, encourage him to save his allowance so that he has the money or encourage him to think about how he could earn more money to buy them faster.  As my kids have gotten older, if their allowance doesn’t cover something they want, we have encouraged them to get part-time jobs.

Share with your kids how you and your spouse make money decisions. Sharing how you decided to buy one kind of car over another and what you thought about beforehand will give your kids a front seat at the family table in terms of understanding the process of making choices.  It’s the choices we make about what we have and the feeling that we have control of our money that lead to money confidence. If you are modeling good financial choices your kids will notice. If they see you saving to buy something rather than putting it on a credit card they will eventually adopt that mindset.  When they see you generously giving at church when the basket is passed, thoughtfully discussing what you want to give to a non-profit you care about, or giving a homeless person a few bucks, they will learn through example that “this is what my family does” without your telling them.

Teaching accountability

Fast forward a few years from the initial allowance days.  My kids are about 9 or 10 years old and they each have an account at our local bank.  For years I’d aim to give my kids their allowance every week, $5, $10 etc. The problem was that I am terrible at keeping cash on hand and always late giving them their allowance.  Not a great way to teach accountability! Thus, we went to the bank, met with the bank management and we set up my bank account so that their allowance was transferred weekly. Each child received a debit card and we taught them how to use it.  Because the amounts in each account are relatively small, I did have to go and speak to the bank and ask them to waive the fees for each of the bank accounts. Since their accounts were tied to mine the bank agreed to do it. However, I did have to go in and ask.  We did it together. Just as you might take your kids into the voting booth with you when they are young, over the years we’ve regularly taken our kids to see us deposit money, speak to the tellers or bank manager, visit our safety deposit box, or take money out. Now that we do so many of these tasks via our phone we try to make a point of talking about it in the moment.

Once their accounts were tied to mine I could also watch how they were spending and reimburse them for items we’d agreed to pay for via transfers from one account to theirs.  Their debit card has given them a way to buy things online and a chance to start learning how to manage their spending on a slightly more sophisticated level.

They will be leaving home for college soon and we’ve begun to talk about credit cards, credit scores, paying (expensive) interest rates, and how to manage spending.  The biggest message I’m aiming to get across is that credit cards are tools and learning to use them well is important. For many families providing some type of credit card for your teenager gives everyone peace of mind that they can access needed funds in an emergency.  Learning to manage a credit card is an important lesson as we become an increasingly cashless society. Years ago, when kids went to college they were inundated with credit card offers. That changed due to some changes in consumer finance protection laws and now it can be difficult to get a card.  A good solution is to get a card from your own credit card company or a local credit union. Most cards set a spending limit per month. Reading the credit card statement together to understand the date when the bill must be paid, what the penalties can be for late payment, and the interest rate on any unpaid balance is a great parent-kid exercise.

In all the years I’ve spent counseling families on how to raise kids to be financially engaged, the most important part was to start the conversation and get help having the conversation if needed.

One kid might take to the conversation quickly and show a lot of interest while another may not.  One may be a saver who has every dollar ever given to him while the other spends it as fast as it accumulates.  Very, very normal. Learning to manage one’s money is an ongoing exercise and regular exposure to strategies, tools, and discussions will build the money muscle.

As your kids get older, families often move from kitchen table discussions about their allowance to dining table discussions about family expenses, goals, philanthropy.  At some point if you are working with a financial advisor you might find it helpful to get her involved. Discuss when it may make sense to invite your children to join you at your annual financial review or set up a separate meeting to discuss some specifics that you are ready to discuss with them now.

As your kids become adults depending on how involved you want them to be, you may want to discuss what your financial situation will be in your retirement, an inheritance, or your wishes for leaving a gift to the church, your schools, or other family members.

For more information or to learn more about how Private Ocean works with families, contact us to speak to one of our advisors.