April is National Financial Literacy Month, so what better time to start the conversation about money with your children than now? Yahoo Finance teamed up with personal finance expert Beth Kobliner, author of Make Your Kid a Money Genius (Even if You’re Not), to help parents and kids tackle these four tricky topics about money.
Allowance is a hot topic with both parents and kids, but Kobliner says it doesn’t really matter if you give your child an allowance or not. What’s more important is talking to your child about money.
If you are going to give your child an allowance, she recommends an amount based on their age: $5 a week for a 5 year old, for example.
“You have to do the 4 C’s: You have to be clear on what that money is for, you have to be consistent, you have to use cash, and you can’t pay money for household chores,” Kobliner says.
Kobliner says kids can start receiving allowance as early as three years old, when they typically begin to understand money, and it can teach them skills like counting and addition and subtraction.
But remember, “It’s important to let your kids spend the money how they want,” Kobliner says.
Saving and spending
When it comes to helping younger kids learn about saving money, Kobliner says she’s a fan of putting money in a jar or an envelope where kids can see the money and know, “This is where I’m putting money to save for something,” she says.
“When people see and touch money, they’re more careful about it, they’re more mindful about it,” she says.
Then, once they’re 5 or 6 years old, parents can open a bank account for their child.
“That’s a real rite of passage: going to the bank, bringing your money with you, putting it in an account, all of these are great experiences for a kid to have,” she says.
A big issue for many families is saving for college, and Kobliner says it should be a family activity.
“Think about how you, as a family, can start looking at colleges and talking about what you can afford and how much college costs,” she says.
Kobliner says it’s important to explain to kids that when you use a credit card, you’re borrowing money that you have to pay back, and that amount could get much larger if you don’t pay it back on time.
“It’s important to only buy what you have money for: Only spend what you have,” she says.
While new rules have made it more difficult for people to get credit cards, Kobliner says parents should never cosign for their child’s credit credit card, because it could ruin their own credit if their child goes into debt.
For younger children, Kobliner says using cash is the most important way to teach them about money, and then once they’re older, you can introduce them to a debit card.
Investing is a tough topic for parents to explain, and parents should be cautious if they decide to let their child invest in a stock.
“If a kid buys one or two stocks, it could be super educational, but if a child loses money, [he] could say, ‘I’m not a good investor.’ Or if [he] makes money, people will say, ‘He’s a genius!’” Kobliner says. “And, as we know, the ups and downs of the markets are not about your ability as an investor.”
Instead, focus on the concept of compound interest, which means the interest from your investment earns interest, making your money grow much faster than if you just saved.
To help kids learn about more basic money concepts, Kobliner teamed up with SNL’s Kate McKinnon to keep financial literacy fun: Watch this video.