Teaching kids about money is just like developing good manners and strong work ethics. Effective money habits aren’t innate. They have to be shaped with intention, guidance, and knowledge, and they usually begin with the parents.
The toughest part of teaching anything is that it is not enough to say all the right things. The right things should also be modeled. Kids are observant. Your behaviors, decisions, and attitudes with money will shape their relationship with it — no matter what you say. According to a survey from Personal Capital, almost 76% of the respondents said their parents influenced their current financial habits. For good or for bad, the way you manage your money could be “inherited” by your children.
In this post, we’ll talk about how you can teach your children the right money habits, as well as some actions to consider that could position them for future financial success.
When Should You Start Teaching Kids About Money?
Kids can start learning about money at any age.
Generally, starting as young as possible is the best approach. The sooner you pique their curiosity, the more they’ll want to know. The trick is to find ways to start the family conversation in a way that makes the teaching age-appropriate.
For example:
- If they’re toddlers, invite them to help you count change or play store. (Be careful that those coins don’t make their way into the little mouths!)
- Once they’re grade-school age, you can challenge them to save up to buy a special toy and offer some tips and guidance. Taking piggy bank coins to a store and exchanging them for dollar bills can be fun for this age. For the grown-ups who are up to this, helping your kids run a lemonade stand can be another way to teach them about making money, tracking expenses, and calculating profit.
- This is a good time to introduce a giving discipline. Organizing money for giving, saving and spending is an important step in prioritization.
- As teenagers, teach them about saving up for something really important. Few families expect their child to pay for their first car or college completely on their own but saving up for gas could well be fair game. You could also use this as an opportunity to talk about long-term implications of big decisions.
Remember that not all the teaching must be done around the kitchen table. Sideline conversations in a grocery store, while choosing a bike, or gathering up old toys for a yard sale can all be effective in modeling good decision making and values.
Great Ways to Teach Kids About Money
Talking to your kids is one thing. But some people learn better by doing. Here are seven practical ways to start teaching kids about money.
1. Remind Them to Save for Special Occasions
Even young kids can recognize that special occasions like Christmas, birthdays, and vacations come around once per year. Each one can be an opportunity for them to practice the habit of saving. Show them how setting aside as little as $2 per week can result in having $100 available to spend on gifts for others during the holidays.
2. Bring Them into Family Budget Conversations
When your children are grade-school age, ask them to guess how much things around the house cost. You could even bring home the cash equivalent of the monthly family budget and then show them (using real stacks of dollar bills) how much goes toward giving, and then what is used in paying for electricity, groceries, health insurance, gas, braces, sports, etc.
3. Open a Bank Account
Opening a bank account with your child advances the concept of saving money. It also helps them build familiarity with financial institutions, which can be invaluable later in life when they face decisions about 401(k) contributions and IRAs.
4. Budget a Shopping Trip
The next time you go back-to-school shopping with your children, don’t just buy them everything they want. Set a budget and let them decide how it should be spent. Remind them to prioritize essentials (like new shoes and coats) over vanity purchases such as trendy, name-brand shirts and jeans.
Some families with teens have success with a policy that has parents supply the budget for a quality update of necessities: enough to give the kids what they need, but not enough to afford fancy choices. If the kids want an “upgrade” to their closet, they have to earn the extra money to pay for it.
5. Get a Debit Card
When your teenager is mature enough, you could let them get a debit card from their bank. Debit cards don’t incur interest and restrict the child to only spend what’s available in their account. Learning how to use a debit card responsibly helps a child build the habits they’ll need when they have a credit card someday.
If your kids are not old enough to get one through their bank, there are plenty of companies that issue them using accounts that can be pre-funded by the parents.
6. Encourage Them to Get a Part-Time Job
Nothing teaches a child about the value of a dollar like having to work for it. Part-time work helps young people realize that money is finite, and that in order to grow your income you have to put in the time as well as sharpen your skill set.
Beyond that, a job can also teach children many other valuable life skills.
- How to interact with other co-workers and bosses (even the ones they don’t like);
- Time management (such as getting to work on time);
- The value of good work ethics; and,
- Appreciation for the people who work at these jobs. Here’s to being kind to cashiers and waitstaff!
7. Open an Investment Account
It’s never too early for someone to start investing for the future. And thanks to the power of compound interest, you could easily set your child on the path to becoming a millionaire someday.
If your child has earned income, consider opening a Roth IRA for kids. You can invest in something simple like an index fund, and the Roth will provide them tax-free growth for decades to come. The sooner you help them to become familiar with the concept of how investing works, the more likely they’ll feel comfortable leaning into it in the future.
Set Your Children Up for Financial Freedom
Remember, good or bad, your children are going to inherit your attitudes and habits when it comes to money. Be sure that you’re consciously practicing good financial behavior and modeling sensible money management. What you impress upon them will have the power to benefit your children for years to come.
For help on how you can start teaching your children about money, check out the book The Opposite of Spoiled by Ron Lieber.
Want to see more on our thinking about teaching kids about money? Check out these resources.
A Guide to Talking with Your Adult Children About the Rest of Your Life
(Podcast) Roth IRAs for Kids and Grandkids
Roth IRA for Kids: Benefits, Eligibility, Investing
