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Suze Orman
Personal Finance Expert

The Important Money Conversation Most Parents Aren’t Having

You envision a bright future for your child—and teaching them to be smart with money is key to their success. Financial guru Suze Orman explains how.

There isn’t a virtual folder big enough to hold all the dreams you have for your child, right? And I’m guessing there’s no limit to what you’ll do to make those dreams happen. For all the complexity that is life, once you become a parent there is also incredible clarity: What matters most is your kid’s happiness. So to that end—what’s your plan for teaching your child about money?

I don’t for a minute believe that money creates happiness, but being a mess with money, not appreciating the value of money and not knowing how to manage money can be a dream-killer. Without actively teaching your kids about money, you leave it to them to draw their own—often flawed—conclusions. For instance, if your toddler is upset that you’re leaving for work and you explain, “I wish I could stay home with you, but I need to earn money,” they may see money as the enemy. Or if your child punches in the PIN for your debit card purchase without understanding the implications, they may see money as a game and think they can have anything they want just by pushing a few buttons.

So how can you go about launching your kid into adulthood armed with critical financial skills? Keep reading.

Modeling Smart Spending

Think back to the money lessons you learned early on, and how that played out in your early adult life. Just how fiscally responsible were you?

Did you make it through your early 20s without late payments on your student loans? From day one of adulting, did you avoid credit card debt and its crushing interest rates? Did you prioritize putting away some savings each month into an emergency account once you landed your first job? Did you soon catch on that a credit score is going to play a huge role in your financial life?

If you answered yes to all of the above, good on you! If not—and you wouldn’t be alone—use that as motivation to teach your kids how to be powerful with money. Even if your little bundle of wonderful is still in diapers, they’re going to be much better off down the line if you demonstrate for them now how to be in control of money.

There’s no getting around the fact that raising children is expensive. But take a hard look at the spending choices you’re making. Sure, those expensive baby outfits are ridiculously adorable, but are you charging them to credit cards that won’t get paid off? Instead of buying yet another toy for your toddler, tuck that little bit into a Roth IRA each month. Or rather than opting for a set of wheels with a hefty monthly car loan payment, go with something less slick and put the savings toward a home down payment.

Even if your kid is too young to have heart-to-hearts about money, your spending choices are saying plenty. What you spend money on today is habit forming, and eventually it will be the template your kids learn from.

Teaching Kids About Money

There is no greater and faster path to financial security (and yes, happiness) than to live below your means but within your needs. The single most important lesson you can teach (and demonstrate for) your kids is an appreciation for the difference between a want and a need. When you’re able to convey that through your actions, you’re creating an incredible legacy. And when the time comes—hello, teen years!—some actual conversations about wants and needs need to happen. Here are four ways to lay the foundation for fiscal responsibility early on.

1. Have them earn an allowance

Yes, age 5 is a little early to start learning to build a strong FICO credit score. But your little sponge is still ready to absorb some money lessons. It’s important to give your child the responsibility of having a few chores that aren’t tied to any allowance. Maybe it’s making their bed or getting their clothes into the hamper. But then layer in a chore or two that does come with an allowance if they complete the task each week. Make it 100 percent achievable. Maybe it’s bringing their clothes from the laundry room into their own room. The idea is to ever so stealthily introduce the idea that with a little work, you earn money. Bonus points if you can make it fun; that’s a wonderful message.

2. Teach them to spend, save and share

I also encourage you to have a plan for how you and your child will handle their money, whether it’s gifts from family or earned allowance. I like a three bucket approach: Spend, Save and Share. That means some of your child’s money is set aside to be spent, some is tucked away as savings and some is earmarked for charity donations. It’s up to you to decide what percentage is placed in each bucket, but be clear and consistent that money is always divided among the three. If you have a Spend, Save and Share plan in place when your child is young, as they age it becomes naturally ingrained in their money habits.

3. Pay bills together

By the time your child is 10 or so, I encourage you to involve them in your bill paying. Even if you use auto-pay, take the time once a month to review a few bills together. Your utility bill can be a great teacher. It starts a conversation about what it costs to run your home—that there is a cost to that warm shower, the electricity that charges all their gadgets and the air conditioning and heat. That bill can also be a motivational challenge: Together, talk through some steps the family can take to reduce the cost by 10 percent, and offer to share half of any savings with them.

4. Talk about a college plan

No later than ninth grade, start talking about your family’s financial strategy for college. This is where a lot of parents drop the ball. Instead of telling your kid not to worry about tuition payments and then take out a loan that’ll threaten your financial security, set a family plan together.

Maybe that means putting expensive dream schools on your child’s college list, with the understanding that they’ll accept only if the aid package is big enough to keep your family on solid financial footing. Add a few schools where your child will be such a catch, there’s a good chance they’ll land plenty of aid. And then include one or two in-state schools. The lower cost is how you can ensure you and your child emerge in good financial shape. Once the acceptance letters roll in, you can decide as a family what makes the most financial sense. A college degree is valuable, but only when it doesn’t put you or your kids in a financial bind.

Don’t wait until the fall of your child’s senior year in high school to tell them what you can and can’t afford—that’s not fair. Instead, have the conversation at the beginning of high school to give your child time to investigate options, pursue scholarships and maybe get a part-time job to help cover some costs. It should be part of the ongoing money conversations you have with your kids that start at a young age and never stop. It’s the talks that dreams are made of.

Set a good example for baby by getting your own finances in order with Suze Orman's must-have documents package. In just 30 minutes, you'll walk away with everything you need to feel financially secure, including a will and trust.

Disclosure: This post contains affiliate links, some of which may be sponsored by paying vendors.

Suze Orman has been called "a force in the world of personal finance" and a "one-woman financial advice powerhouse" by USA Today. She was a contributing editor to O: The Oprah Magazine for 16 years and the host of The Suze Orman Show on CNBC for 13 years, has won two Emmy Awards for her television work. Twice named to Time 100 and ranked among the World's 100 Most Powerful Women by Forbes, Orman is one of the top motivational speakers in the world today. She recently released her updated and revised best-selling book, Women & Money, and is currently the host of the Women & Money *podcast. Visit SuzeOrman.com and follow her on Facebook and Twitter.

Published March 2019

PHOTO: H. Armstrong Roberts / Getty Images