The way we interact with money continues to evolve each year.  According to the Federal Reserve Bank of Boston's most recent report of Consumer Payment Choice, cash transactions make up

only 30% of all financial transactions and continue to decline each year. From new apps like Venmo and Googlepay to Paypal and Applepay, today's youth experience money in a way totally unlike anything any generation has seen before.  With just a few taps on a smartphone or tablet by their parent, children watch in awe as packages show up on their door step – almost magically.   Both the speed of money transfers and the adoption of electronic payments are expected to increase exponentially over time leading many parents to wonder how to teach their children about money in today's digital, one-click society.   Without a solid base of financial literacy in place, today's children may be unprepared to handle the problems that can arise from the new financial world that we live in.

Just how early should you consider beginning your family's financial curriculum?  While the answer will depend on the child, it is a great idea to begin explaining how money works as early as pre-school or kindergarten.  Start with a discussion of the differences between needs and wants.  Taking your child shopping at a brick and mortar retailer to review specific purchases may help your child to understand how to prioritize between the two.  Also be sure to explain the concept of delayed gratification.  Children need to grasp the idea that you do not spend money you don't have.  It is especially important for parents to be a good example for children in this area.  If a child sees mom or dad consistently making impulsive purchases that rely on debt, children may have a difficult time showing the restraint necessary to avoid adopting the same behavior as they grow.

Saving, spending, and giving

As children get a bit older, birthdays, holidays and other special events can present excellent opportunities to introduce the concepts of saving, spending and giving.  First, consider converting any checks received as gifts into cash so that money is more tangible and can be easily counted. (This can also be a great math lesson too.)  Next, have them deposit a portion of the gifts they receive into 3 different piggy banks or jars that are labeled as saving, spending and giving.  While most children will be comfortable with the spending jar, take extra time highlighting the importance of saving and giving.

Use the saving jar as a way to transition into a conversation about establishing future purchase goals.  Consider having your child choose a toy they are interested in purchasing and show them how to comparison shop online to ensure they are getting the best deal.  Help them to print out a picture of the toy, write the price and then attach both to the Saving Jar.  This helps to serve as inspiration for achieving the goal while also practicing the very difficult skill of disciplined saving.  This can also help children to learn that a savings goal is simply a future spending goal.

Finally, use the giving jar as a means to share the importance of helping those that are less fortunate or need some support.  Consider using a charity that helps other children or another organization your family supports as starting point.  This can be an effective way of helping your children to learn just how good it can feel to help others in the community that may need assistance.

Make money more tangible

As children reach 2nd or 3rd grade, it is time to move from the jar to the vault by introducing bank accounts.  Despite the fact that interest rates are not exciting, be sure to introduce the concept of simple and compound interest.  While they cannot expect to earn too much, it is important for children to understand how saving may help them earn interest while socking away money for the future.  Set a special day aside and be sure to make a big deal of the fact they are opening their first bank account.  Consider sharing that they should only access their savings for a specific savings goal or an unexpected financial emergency.

The time when a formal savings account is established may also be an appropriate time to introduce the concept of an allowance.  Rather than simply associating money with gifts and holidays, an allowance can help children to connect money with hard work.  The more children gain an appreciation for the amount of work that went into earning their allowance, the less likely they may be to make frivolous or impulsive purchases.

Saving versus investing

As children reach their teens, the money message can be taken to the next level by teaching them the difference between saving and investing, budgeting, debt avoidance and taxes.  Introduce them to the benefits of thinking long-term and investing for their future.  Explaining the concept of risk and reward with a lesson on the stock and real estate market can help.  Also consider discussing taxes and how living within a budget may help you to avoid spending more than you earn.

The more on-demand our world becomes, the more difficult it is to teach children good money habits.  Having regular, age appropriate conversations about money with children may help them to develop a solid financial foundation.  Since everyone's situation is unique consider speaking to your financial adviser for additional information.

Kurt J. Rossi, MBA, CFP®, CRPC®, AIF® is a CERTIFIED FINANCIAL PLANNERtm Practitioner & Wealth Advisor.  He can be reached for questions at & LPL Financial Member FINRA/SIPC.