Set your kids up for financial success in adulthood by teaching them complex finance and investment topics as children.
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All parents want their kids to succeed in life, especially after they have flown the coop. To help kids succeed financially in their adult years, it’s best to start having conversations early on about finances so that they can grow up with a strong understanding and grasp of how to manage their money and what they can do to make smart, sound investments with their own money.
What Is Money Management?
Money management can include topics such as debt, savings, and investing.
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Money management is an all-encompassing term that describes how someone chooses to manage their finances. From spending to saving and everything in between, understanding money management best practices can help you retain control over your financial habits. As your kids grow, it is especially important to start teaching them the ropes of money management. Here are some of the basic money management concepts you may want to teach your children about:
Budgeting: Budgeting involves tracking income and expenses while also setting goals for how money should be spent. Teach your children that budgeting can help them create a financial plan to manage their finances and achieve their financial goals in the future.
Saving: Saving is setting money aside for large expenses, emergencies, and things like retirement. Teach your kids that saving regularly can ensure financial preparedness when they make larger purchases rather than taking money out of regular accounts.
Healthy spending habits: Money should be spent wisely. Understanding the difference between financial wants and needs can help ensure better financial decisions are made.
Debt: When large purchases or investments are made, that person likely will take loans out and have some lingering debt. It’s important to teach about managing debt through topics like interest rates and debt repayment.
Investing: By investing money into something, the goal is that the money invested will earn more money over time. Teaching topics like investing in bonds or stocks can help kids understand all the options available to them when spending their money in adulthood.
Teaching Your Kids About Money Management
Help your kids make better financial decisions by teaching them money management early in life.
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Teaching young children how to manage their money is a great way to help them understand the core topics that they will use to manage their own finances when they reach adulthood. You can teach your kids how you choose to manage your money and even tell them about mistakes you’ve made in the past to help them learn. As you decide to start teaching money management to your kids, here’s how you can approach the topic for kids in different age ranges:
Young kids (ages 5-8): As your child reaches this age, you should start introducing them to the concept of money if you haven’t done so already. Show them physical coins and bills as you teach them the value of each. As a fun activity, you can get them a piggy bank and encourage them to save up for little things like a toy or something special.
Pre-teens (ages 9-12): one of the most common ways to teach pre-teens about money management is to have them start doing some chores around the house for an allowance. As they start to earn money, take the time to explain different ways they can spend their money—on wants or needs—to help them understand how to make better spending habits. You can also try introducing budgeting concepts and encouraging them to keep track of their earnings and their spending habits.
Teenagers (ages 13-18): Especially as your children get closer to adulthood, it’s crucial to start teaching them more complex money management topics, like credit, loans, and other topics as such. Open up the conversation about saving up for long-term goals, like college, and how they can achieve those goals. Once they reach the age when they can start working, you can encourage them to get a job or an internship to get some real-world work experience and spend their money on things they want.
As you teach your children about money management, you may want to consider using everyday situations to help them grasp the topics or even turning those real-life situations into games to help them understand the topics better.
What Is Life Insurance?
Before you talk to your kids about life insurance, understand what it is and how it works yourself.
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Life insurance is a type of policy where a life insurance company agrees to pay out a sum of money to a policyholder’s beneficiaries after the policyholder dies. As long as the policyholder continues to pay their regular premium payment, the life insurance policy stays active, unless it expires. Life insurance can be used to provide surviving family members with a bit of financial support that can be used to pay off any large debts, help pay for childcare, or even leave inheritance money behind for children.
There are many different types of life insurance, but it does boil down to a couple of popular options:
Term life insurance - This type of life insurance policy is very basic, and thus generally fairly affordable. A life insurance company will have you submit an application and undergo a medical exam so that they are able to determine how much coverage they give to you and at what price. Term life insurance, much like the name suggests, only covers policyholders for a specified term. That term can range from 10 years to even 30 years. After it has reached its term, the policy expires. There are opportunities to renew the policy, though.
Accelerated term life insurance - This type is almost the exact same as a traditional term policy, however, you can get this type of life insurance without a medical exam. Instead, you would give a detailed history of your health conditions, your financial situation, and your lifestyle. Then, most companies use predictive models to determine whether or not they can approve you for a life insurance policy. Whereas a traditional approach may take weeks for an application to be approved, an accelerated policy can be approved within a few hours after starting the application.
Whole life insurance - This policy type is a bit different from the two mentioned above. Whole life insurance is a type of permanent life insurance policy that covers a policyholder for their entire life as opposed to a certain period of time. Whole life insurance policies also typically have a cash value benefit as well where the policyholder can borrow against the cash value as it accumulates. Because this type of life insurance tends to be much more comprehensive, you can expect to pay a much higher price for this type of insurance as well.
While these are definitely the most popular types of insurance, remember that they are not the only types of life insurance available. If you are in the market for life insurance, you will have to weigh the advantages and disadvantages of each to determine which is right for you and your needs.
Teaching Your Kids About Life Insurance
Use language and examples your child understands to teach them about life insurance.
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Life insurance is definitely a hard topic to teach your children about, but it’s not impossible to start the discussion with them early on. As long as you try to use age-appropriate ways to teach your children about this topic, you will be able to start teaching them about this concept from a young age and build upon it as they get older. If you are trying to teach your child about life insurance but you aren’t sure how to start the conversation, here are some ways to approach it depending on their age:
Young children (ages 5-8): Once your children reach this age, they are likely developed enough to lay the groundwork for opening up a conversation about life insurance. But if you do not feel like they are ready for the conversation yet, there’s nothing wrong with waiting. At this age, you should always use simple and clear language to help them understand the topic at hand. Try to explain that it is like a safety net for families and help them understand that it could even help your family if something unexpected happens. You don’t have to go into too much detail here; keep it light but open. You may also try using their favorite toy as a practical example to teach them the value of protecting things they care about.
Pre-teens (ages 9-12): As your child reaches the pre-teen age, you can start introducing more complex details about life insurance and even relate it back to the more complex money management topics you teach them. Try to use real-life examples of how life insurance can help families through difficult times. You may want to talk about a death in the family to help them understand the concept a bit better. As you talk to your pre-teen about life insurance, make sure they understand that they can and should ask questions if they are confused or scared. This will help them feel confident and comfortable talking about topics like this in the future, too.
Teenagers (ages 13-18): At this age, your child is likely reaching a level of maturity that can make having conversations like this a bit easier. You may start explaining different types of life insurance policies, how each works, and the risks and benefits of each type. It might be a good time to start talking to them about your own life insurance policy and why you chose it. As they reach the appropriate age, encourage your kids to do some research of their own so they can make their own informed decisions as adults.
Always remember that all kids are different. Some might be ready to have this conversation at an early age, and others may not. Try to adjust the language and the concepts you use when explaining life insurance in a way that they can relate to and understand. Be as open and honest as possible so that your kids feel comfortable asking whatever questions they may have.
When we think about our children as adults, the only thing parents truly want is to know their child will succeed—no matter what that success looks like. Learning how to be an adult is hard enough when kids reach their early 20s, so why not make it easier on them? By teaching them more complex money and investment topics early, you will instill confidence in them that will help them make better, smarter financial decisions in the future.
Article Credits/References: Fabric, iStock Photo, CNBC, Wandering Moms, Google Search, Google Lens, Nerd Wallet, Common Sense Media, and Bank Rate
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