Parents shouldn’t wait until their children are old enough to get benefits to talk to them about money.
That’s according to Ken Eyler, CPA and CEO of Aquilance, a financial services company dedicated to “very affluent families.”
In his 31-year career advising wealthy families, Eyler has seen more than 100 children grow into adults. He advises his clients to start teaching their children about money at an early age, around 5 or 6 years old, to help them develop life habits and a positive relationship with it.
“By the time they’re 11, 12, 13 and starting to hit their teens, they should be pretty familiar with how money works in society,” he told CNBC Make It. “Money is a tool, and having it for any purpose is really important.”
From savings to taxes, here are three pieces of knowledge he says all parents should consider teaching their children when they’re young.
1. Teach them the importance of saving
One of the first things parents should teach their kids is the importance of saving money, says Eyler. His advice comes from experience: Eyler’s own parents had rules about how he was allowed to spend the money he received when he was a boy.
“If I got $100, I could spend a third of it, I had to save a third, and I had to find a third to do something productive,” he says. His options ranged from donating the money to running a “small business”. The rules taught him that he couldn’t spend everything he had.
“It’s absolutely crucial to have some cash on hand,” says Eyler. “There are always circumstances in life where you need a reserve of money.”
In addition to saving, having a basic understanding of investing and compound interest can be invaluable. Indeed, legendary investor Warren Buffett called compound interest an investor’s best friend.
2. Help them understand taxes
Kids should also have a general understanding of taxes, says Eyler. It ranges from understanding why they’re taken off a paycheck to why they’re added to the final price of something you buy at the store.
“The reality is that every person in society pays taxes,” he says. “I saw this with my stepchildren years ago. They were like, ‘Wait, what is that?’ when they were buying things for themselves and suddenly a purchase of $10 was close to $11.”
Parents also need to make sure their children understand why taxes are deducted for things like Social Security and Medicare. Helping kids learn about taxes when they’re young can help them avoid unpleasant surprises once they start earning their own money, says Eyler.
3. Show them your credit card statement
Familiarizing children with common financial documents at an early age can also help them grasp important financial concepts.
“It can be as simple as a credit card statement,” says Eyler. “When I use a credit card, it doesn’t mean I have unlimited access to funds.”
Eyler suggests walking your child through your credit card statement and explaining things like your credit limit. “Having a $10,000 credit limit doesn’t mean I have $10,000 to spend because I can’t pay that money back,” he says.
Eyler adds that showing kids expenses related to them — like a payment for summer camp or a coveted toy — can “show them how life works.”
“Help them understand that everything takes work and money,” says Eyler. “It’s a good education at any level.”
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