Top questions kids ask about money (and how to answer)

Despite their children’s curiosity, parents tend to be tight-lipped about family finances. But children’s questions—and your answers—can provide a valuable education and keep kids from thinking that money topics are scary or taboo. By engaging with your children about how money works and your family’s relationship to it, you can shape their perspective on spending and saving.

Here are several questions children often ask about money, as well as suggestions as to how you might answer.

Money is an abstract concept for children, and they may assume you have an unlimited supply. Rather than simply telling them that money doesn’t grow on trees, try explaining in a way they understand that money is limited.

If a child keeps change in a piggy bank, for example, explain you do the same with the money you earn at work. Just like that piggy bank, you can’t take money out of the bank that you haven’t put in. Explain you use the money you keep at the bank to buy things the family needs, such as clothes and food.

Many parents are reluctant to share their salaries with their children—in part because they understand how eager their kids might be to compare notes with their friends. But children have concerns about money, and refusing to talk with them about it could cause anxiety and a fear of the topic that may well last into adulthood. Too much information can overwhelm kids, though. So try to be honest without telling them more than they need to know.

As a first step you could explain that you make enough money to ensure your family has everything it needs. That doesn’t necessarily mean disclosing a number. In fact the difference between $50,000 and $500,000 might not mean much to your fifth-grader. Instead think of the question as an opportunity to talk about how the money you make helps pay for the things your family needs, such as food and housing.

For younger kids, you can use a pile of change to represent what you take home every month. Then list your family’s monthly expenses—from groceries to TV bills—and draw from that change pile to show how that money is spent. The remaining money, you can explain, goes into savings and can be used for expenses, such as college or family vacations.

As early as elementary school, children look to define themselves—and their families—in relation to their friends and the rest of the world. Although they may have heard friends talk about being rich or poor, it’s still hard to appreciate what either means.

As a parent you can shape a child’s definition of what it means to be well-off. Nearly every parent can note there are people who have more than you do, and people who have less. Being rich means having a lot of something, but that doesn’t necessarily mean money. For instance you could say your family is rich in happiness and love for one another.

In this case you could say everyone spends their money differently based on what they think is important. For your family that may be having a home, as well as money for toys, vacations and college.

It’s unlikely a third-grader appreciates the true cost of a bigger budget item such as a second home. Help contextualize it by having your child list things she might want—new toys, dinner at her favorite restaurant, a vacation—and then write down what they cost. Next you can note the cost of a summer home. By comparing those figures, you give your child a sense of how a big purchase could limit her ability to have those things. The exercise can help kids think about prioritizing spending and identifying the things that they value.

A change in spending habits—going out less, for example—can confuse children. They may overhear tidbits of adult conversations and draw their own conclusions, which may be significantly worse than the reality. If you are trying to cut spending, it’s a good idea to be upfront. You might explain, for instance, that the family has a big expenditure coming up—a new roof or even a special vacation—and you need to save up for it.

It’s important to emphasize what doesn’t change in their lives—for example, they always have food to eat, regardless of where they eat it. Kids may be especially motivated to support this effort if you make it fun. For example if you can’t afford to eat out as often, ask them to help you plan the week’s meals.

By approaching children’s questions with honesty and understanding, discussions about money can be an opportunity to embrace rather than a chore to avoid.