NerdWallet: How to set good money examples for children

Children notice everything, regardless of whether you think they're paying attention. They repeat the curse words you blurt out when you step on a toy, and spill your embarrassing family secrets to their friends.

From a surprisingly early age, the children in your life also notice money: who has it, who doesn't, and how your household handles it compared to other people. They overhear arguments and pick up on stress. With every financial decision, you set an example.

"You are a mirror and your kid is a sponge," said Jordan Wexler, co-founder and CEO of EarlyBird, a registered investment advisory company where parents can open custodial and college savings accounts for their children.

So, no pressure, but modeling positive money behavior for all the children in your life is important, whether you're a parent, relative or close family friend. It starts with figuring out your own approach to money, and then providing age-appropriate lessons.

Establish your household values

It's hard to teach another person how to spend, save and donate money when you haven't set your own goals and priorities. Maybe you want to set an annual budget for charitable giving, or you save slowly for upcoming expenses to avoid credit card debt. All of these decisions tie back to what you (and your spouse or partner if you have one) truly value.

Kelly Palmer, founder and chief wealth officer at The Wealthy Parent, a registered investment advisory company providing financial planning for new parents, recommends that families with a mother and father demonstrate that both parents, not just the dad, are financial decision-makers.

"It's important for children to see women involved in these conversations," she said.

Being confident in your decisions makes it that much easier to explain your thinking to a child, and you can use your choices as a way to start thoughtful conversations with your children.

Involve children, provide context

Trips to the store, calculating the tip at the end of a dinner out, planning your summer vacation -- these are all opportunities to talk about money and values. But when you're running errands in a rush, sometimes you just want to brush off your 's incessant questions and move on with your day.

You don't have to have a deep money conversation in the candy aisle while convincing an irate child that chocolate isn't on your shopping list. But you can always revisit the topic later, when things are calmer and the memory of the unbought chocolate isn't as fresh.

Providing context helps children understand why you're making a specific choice -- why you buy a certain brand of toothpaste even though it's more expensive (sensitive gums), or why day camp is possible this summer but sleepaway camp isn't (so you can also afford a family trip over winter break that year). Inviting children into the push-and-pull of your daily money decisions shows them all the factors that are involved in making one seemingly simple money choice. When they're adults, they can use those lessons in their own lives.

"One of the hardest things, and the easiest things, that we tell kids is 'We can't afford that,'" said Mary Bell Carlson, a certified financial planner who is president and founder of Financial Behavior Keynote Group, a speaking, consulting and education firm providing thought leadership on financial behavior change. "It's a missed opportunity to have a conversation about that."

Acknowledge the comparison trap

Kids notice when other people live differently. Their cousin has more toys, a friend from school lives in a bigger house, or a neighbor goes on vacation every summer. They might push back on your value system when they see others getting the things they want.

"When they're out in the wild, if you will, they're going to be exposed to all sorts of emotions around money," Palmer said.

When your child asks for something you weren't prepared to pay for, don't dismiss them, said Carlson, who has a doctorate in personal financial planning with an emphasis in financial therapy. Ask them about why they want that item or experience. Talk to them about the cost. Older children might be willing to save up their allowance to contribute, which provides a great lesson in saving over time for a big purchase. The important thing is to show your children that they can come to you with a money question and be taken seriously.

"At the end of the day, it's really not about money. It's about the emotional connection with your children," Carlson said. "It's about showing you care regardless of what you do or don't have."

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This column was provided to The Associated Press by the personal finance website NerdWallet. Sara Rathner is a writer at NerdWallet. Email: srathner@nerdwallet.com. Twitter: @SaraKRathner.

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