What is financial literacy? President Bill Clinton explained it best: financial literacy is “a very fancy term for saying spend it smart, don’t blow it, save what you can, and know how the economy works.” Studies show that if parents work with their children when they are young, they will learn the power of saving early on and be more financially responsible as adults. Below are seven tips for teaching kids about money.
Make it Fun You may think that your 8-year-old is too young to learn about finances, but that’s not true. Games like Monopoly, Life, and Pay Day are great ways to teach your children about basic finance: how to make money, how to spend it, how to save it, and yes, how to blow it.
Be a Good Role Model Your children are watching you. Financial literacy is not taught in most schools, so it’s up to you to help your children understand the value of money. Make a budget yourself and include essential categories: expenses, savings, giving, and emergencies. Show them how to make a budget like yours.
Discuss Your Spending and Saving Habits Seventy percent of parents have some reluctance discussing financial matters with their kids. Don’t let that be you. Discuss your spending and saving habits with your children, even if it feels uncomfortable. Involve them in family purchasing decisions; for example, doing research and comparison shopping when buying a car.
Give Them an Allowance Many parents give their children allowances, but not all make them earn it. It’s better to connect chores with allowances, so your kids learn to tie work with income. Teach them how long-term saving can make that money really count.
Talk About What Money Does Even with elementary-aged children, you can discuss the importance of money and what it can do. Use teachable moments, perhaps as simple as bill-paying, as everyday examples of the cost of basic needs. They may not realize how much internet services cost or that electricity is not free.
Let Them Work High schoolers are not the only ones who can work. Middle schoolers can mow lawns, babysit, and do odd jobs for neighbors.
Encourage Saving Forty-eight percent of kids usually spend money as soon as they get it. It’s your responsibility to help them understand the importance of saving. Assist them in developing saving goals, so they think before they spend that hard-earned allowance, birthday money, or holiday check from grandma.
No one wants to consider their kids may be dependent on them long after they’re out of school or that they may face mountains of debt.Teaching teens about money, However, these fears could become life-changing realities if parents wait too long to teach their children about managing money.
Some schools are beginning to embrace financial literacy, but who better than parents to teach healthy financial habits and serve as role models for wise money management?
These tasks may seem a challenging, but it’s not as difficult as you might think to teach your kids good financial habits. We’ve gathered important tips from 10 parents who are financial experts, consultants and bloggers, all of whom are raising financially savvy children of their own.
Take a look at what our experts have to say:
Start Early Here’s something many parents don’t realize: Starting early is one of the smartest things you can do to teach children money basics. You might think that money talk will go over your toddler’s head, but research shows that, by age 3, kids already can understand basic financial concepts like value and exchange. What’s more, by age 7, many of the habits that will help kids be smart with money – like the ability to wait and to delay gratification – are set for life.
Teach Them to Build Credit Now When it comes to setting your child up for a solid financial future, having a conversation about the role credit will play in their lives is a must. As students turn 18, they become bombarded with credit card offers – and if they are not aware of the pros and cons of credit cards, they can find themselves in debt. Many young people are not aware that credit affects their ability to get a decent interest rate when financing things such as a house, a car or any other major purchase, as well as influencing their car insurance rates.
Now is the best time to become intentional about teaching your children about lending and borrowing. You can give your children loans and have them pay them back by a certain date to get them into the habit of paying their bills on time. And as your children reach middle or high school, go through your credit report with them and use it as a teaching moment.
Challenge Kids to Cheapen Their Eats Use grocery shopping to teach kids this important life lesson – when you go to the supermarket, you’re not just pushing your cart through the aisles, you’re wheelin’ and dealin’.
Fact is, home-cooked meals are a big money saver and they’re healthier too, because you have control of the ingredients. Kids can learn how to save money on food by helping you plan a weekly menu around sale items; they can help you load digital coupons on to your grocery store loyalty card. They can learn to become super savers by combining sale items with coupons and stocking the pantry and freezer with bargain buys. You can show them how to use apps, such as ibotta to get rebates on groceries.
Set Savings Goals If there’s something your child desperately wants, like a new pair of Nike sneakers, teach them how to set a savings goal. Offer to match their savings to pay for the “want.” Assign money-making chores or encourage them to increase their babysitting or lawn care tasks to pull in more money. Demonstrating how money must be earned in order to fully finance a want is a wonderful lesson, and your kids may decide all their hard work is worth more than a pair of trendy shoes.
Teach Kids to Delay Gratification We are working on the financial basics right now with our young son. Our first fundamental lesson is on delaying gratification. We started by limiting his Halloween candy consumption to just one per day. Luckily, he went along with this plan without much protest. He has been to the dentist before, and he doesn’t want any cavities.
Don’t Pay Allowances with Cash Teaching kids how to use money is important, but it’s even more important to teach kids how to use money in the ways they’ll actually be using it. We live in a world where few people use cash, and most people use debit or credit cards for all of their purchases. Unfortunately, if people don’t have experience managing their money digitally, they can quickly end up spending more than they earn.
While there are countless apps out there to help teens manage their money, the most important aspect of an app is that your teen is actually interested in using it.
“The most effective money management app is one your teenager will consistently use,” Castellano notes. “It has to be engaging, simple, and genuinely helpful. There are also goal-based savings accounts like Smarty Pig, for example, that allow you to not only earn a good return on your savings but also lets you set goals and track your progress toward meeting them.”
FamZoo—The FamZoo family finance app teaches kids how to manage their money by allowing for the creation of accounts that give every dollar a purpose—such as saving, investing, giving, and spending. You can also create incentives within the app to reinforce financial behaviors that align with your values.
Savings Spree—Another financial literacy app (this one for kids 7 and up), Savings Spree teaches users about saving, investing, donating, and spending, all via a game show format.
Bankaroo—Billed as a “virtual bank” for kids, Bankaroo teaches them how to spend responsibly and save for their short- or long-term goals.
And perhaps one of the best strategies for teaching teens about money? Not turning it into a monologue.
“Keep the conversation short, avoid lectures, and make it enjoyable,” says Tucker. “It’s great to be transparent with your family budget and use real-life examples. It also helps to offer to match their savings for a greater incentive.”
These incentives can include summer camp, a big purchase like a gaming system, or a special outing, like a concert with friends.
Any parent of a teen knows that talking to their child about, well, anything can be challenging. But that doesn’t mean parents should skip those hard conversations, especially when it comes to teaching your teen how to manage their money, deal with credit, or stick to a budget. Plus, they likely have their first job and will be heading off to college soon to claim their independence. One report found that 70 percent of college grads say they learned their financial skills from their parents. But how can parents broach this sometimes-tricky subject, sans eye-rolling? Read on for a parents’ guide to teaching teens about money.
Money Management for Teens
Much like the other milestone “talks” you’re bound to have with your teen, (ahem, the birds and the bees) teaching them about finances should also start with an open and honest conversation.
“It’s funny, we have ‘the talk’ with our kids about sex and drugs. But for many parents, those uncomfortable conversations are easier than teaching our kids how to manage money,” says Sallie Mae spokesperson Rick Castellano. “That said, having open, honest conversations about money and finances and giving kids skin in the game can really go a long way to building financial independence.”
Castellano suggests starting with a simple budget that lists out all possible sources of income, how much they need for necessities and how much they want to save each month.
Budgeting for Teens
Sixty-nine percent of Generation Z (those born from the mid-1990s to the early 2000s) say they don’t have a clear understanding of how much they should spend versus how much they should save for long-term goals, a recent study found. In other words, most teens have no idea how to set a budget.
One of the most effective ways to teach the concept? Give them insight into the family budget.
“Sharing the reality of your family budget can help your teen grasp key financial concepts such as compound interest, delayed gratification for those things that matter most, and thoughtful savings,” says Leo Tucker, managing partner at Northwestern Mutual. “I also recommend making the process of handling money as simple as possible.”
For example, for every dollar your teen earns, provide them with four different buckets in which they can allocate their funds, he says. These buckets can include savings, expenses, charity, and investments.
You’ve probably heard of the 50/30/20 rule. But it’s also a great way to teach teens about constructing a workable budget. “An easy way to think of this is to follow the 50/30/20 rule with 50 percent going toward essentials, 30 percent going toward personal spending, and 20 percent going toward savings—an easy budgeting guideline that can be followed at any age,” says Shirley Yang, head of marketing for US deposits at Marcus by Goldman Sachs.
First Credit Cards for Teens
If the idea of giving your child a credit card scares you, you’re not alone. But it’s a necessary evil. After all, helping your teen learn to responsibly use credit and build a credit history is an important financial lesson. Start with a teen-friendly credit card with a low spending limit. You also might consider a secured credit card. These cards require a security deposit to open the card, which then serves as your credit limit. Below are a few solid options for your teen’s first credit card.
Apple Card—Ideal for older teens (it’s for ages 18+), this card is built right into your teen’s iPhone, so there’s no chance of them losing it. Well, unless they lose their phone, but that’s a whole other story. Apple Card’s design is intuitive, customer service can be reached via iMessage, and it even has the capability to send out weekly and monthly spending reports, so your teen can see how their spending stacks up.
Journey Student Rewards from Capital One—This $0 annual fee card, created just for students, is a great first card option. It’s meant for those with no or little credit history to start building a positive credit history. Users are covered by a $0 fraud liability (meaning that if their card is stolen, they won’t be on the hook for fraudulent charges). They can also set up automatic monthly payments, and they can even qualify for a higher line of credit after six months of responsible use.
Discover it Secured Credit Card—This card is one of the best cards out there for building credit. Here’s why: Since it’s a secured credit card, you’ll be required to put up a security deposit for your teen to start using the card. You choose the deposit amount up to the card’s approved credit limit. Also importantly, unlike most secured cards, this one will build credit history with the three major credit bureaus. Additional highlights include no fees, and—bonus—the option to earn cash back, another rarity for a secured card.
Teach Kids About Money Through Spending, Saving, and Giving
Spending
The best way for teaching money management to children through spending is by giving them the opportunity to spend their own money. I like to wait for the big spending moments and I’ll give you an example of that in a minute.
If your child wants to spend their allowance on trash trinkets, let them. Guide their choices and refrain from criticizing their decisions. Give them rules, but give them room to mess up.
It’s important to give them the opportunity to spend money on junk they don’t need. They will learn an important lesson when they don’t have money for things they really want, like a new phone or computer.
Savings
Speaking of computers, two years ago my daughter decided she wanted an iPad. I wasn’t buying it and she knew it.
She saved all of her allowance, birthday, and Christmas money for two years. This year she purchased her own Chromebook.
Baby girl could have continued saving for the iPad, but I believe she was getting a little impatient with how long it was taking her. Think she learned a valuable lesson? Yep.
She learned that sometimes we have to adjust our wants. Another lesson she learned was that it’s important to hold on to our money so we can use it to splurge on bigger purchases.
Giving
The best way to teach kids about money through giving is to help them figure out a way to give to a cause important to them. Also, they can learn to give to their church by giving ten percent of their earned money.
If your child loves animals, maybe they would be interested in giving to an animal shelter. Maybe your child is particularly moved when they see a homeless person. Perhaps they can save their money to make a donation to a food bank or homeless shelter.
We encourage our daughter to give to the church, but the possibilities here are endless. Giving their money away to important causes may even encourage them to fundraise additional money for giving too.
Teaching kids about money is a matter of sharing your ideas and values with your kids as you go through the routines of daily life together.
In a world bent on enticing kids with the trendiest fashions, newest gadgets, and tastiest treats, how can moms and dads work on teaching kids about money? How can they equip their children to survive financially? Those are good questions. Especially in view of the fact that most family calendars don’t leave room for detailed discussions of money management. “Ain’t nobody got time for that!” Right?
Not necessarily. As a matter of fact, if you take your role as a parent seriously, you’ve probably already sensed that raising money-smart kids is important. More than that, you probably know that somehow or other, you’ve got to find or make the time to broach this subject with them before they’re old enough to launch out on their own.
We’re here to tell you that teaching kids about money can be easier – and a lot more fun – than you think.
Motivation: The Current Cultural Climate
Five powerful cultural trends support the idea you are vital to your child’s financial education:
Most youths are financially illiterate. As a matter of fact, a recent Consumer Reports survey revealed that 28 percent of students did not know that credit cards are a form of borrowing. 40 percent did not know that banks charge interest on loans.
Advertisers and credit card companies are targeting children and teens. These professionals realize that contemporary kids have more money and spending influence than at any time in recent memory.
Most parents believe that someone else is teaching kids about money and finances. Believe it or not, 80 percent of parents assume that schools are providing classes on money management and budgeting. This simply isn’t the case.
Whether you like it or not, your kids are looking to you for financial guidance. Surprisingly, 63 percent of older teenagers – kids who are notorious for knowing it all and not listening to their parents – say that they get most of their information on money matters from mom and dad.
Financial support for churches and ministries is dropping – and is likely to be even weaker in the future. The younger generations simply aren’t getting the message that giving matters. Pastors report that most of their donations come from church members over age sixty-five.
Add it all up, and you’ll have some idea of why it’s so crucial to start teaching your kids about finances at the earliest opportunity.
Foundation: Biblical Perspectives and Principles
We have several activities to suggest that should make teaching kids about money a process as smooth and enjoyable as possible. We’ll provide fun things you and your kids can do together to help the whole family gain a firmer handle on the mechanics of money management.
Teaching Kids About Money: A Solid Conceptual Foundation
But before getting down to nuts and bolts, we need to begin by laying a solid conceptual foundation for the project. The Scripture says, “As a man thinks in his heart, so is he.” In no area is this quite so obvious as in the way we approach our finances.
The first three things you need to know regarding teaching kids about money can be summed up in terms of the following three biblical principles:
God owns it all. “What do you have that you did not receive?” asks Paul in 1 Corinthians 4:7. Everything we have comes directly from the Lord. He is the Owner; we are only His stewards. And as stewards, we have no rights – only responsibilities.
We are in a growth process. Our time on earth is temporary and is to be used for our Lord. Money and material possessions are just one aspect of the bigger picture (Colossians 3:2). Our eternal position and reward are closely intertwined with the way we handle the property God has entrusted to us.
Faith requires action. Simply knowing that God owns it all is not enough. The lazy and wicked servant in Jesus’ story (Matthew 25:26-27) knew that he had been entrusted with his master’s money, but he did nothing with it. God’s resources should be used with an eye to God’s goals and objectives.
If your kids can grasp these fundamental concepts, they’ll be well on their way toward becoming effective managers of their money. It’s all a matter of building on the right foundation.
Children are keen observers. They learn how to manage money from their parents and they learn very young. Your attitude about money, and the actions you take to manage it, will have a lasting impact.
Money doesn’t grow on trees Spending is easy. The trick is to teach financial education for kids is how to earn the money necessary to pay for what they need today and tomorrow, to save for what they want and to help others when they can along the way.
A penny saved is a penny earned Promote positive earning, saving and spending behaviors to help minimize “bad habits” later in life. The following steps will reinforce your children’s positive attitude about learning and work, empowering them to manage their finances wisely through the years.
Always start early Promote patience (delayed gratification), as well as counting and basic math skills with toddlers and young children. Help them understand the difference between things they need and things they want
All things cost money – and you earn money by working During grade school, talk with your children about your job and what you do to earn your paycheck. Discuss what they can do to earn their own money (an allowance for doing household chores; yard work, shoveling or babysitting for neighbors; an after-school or weekend part-time job)
Budget Discuss your financial goals with your children and explain how you budget and save what you earn to achieve those goals. Let them learn from your successes and missteps; encourage them to ask questions. If your children want something, rather than buy it for them, help them develop a plan for saving up to buy it themselves
Bank accounts can help your savings grow Take them to the bank to open their first savings account. Have them make deposits regularly, setting aside some of the money they received as birthday/holiday gifts or as payment for work they’ve done. Explain that the bank will help their savings grow by depositing interest every month; the more money they save, the faster it will grow
Create a savings strategy Constantly reinforce the difference between “wants” and “needs,” and discuss the importance of helping others through charitable donations. Encourage your children to divide their money into three groupings: saving, spending and donating
Cost of borrowing money Credit card, auto and home loan ads may lead your teens to believe borrowing money is an easy way to get what they want. Discuss responsible borrowing and the true cost of purchasing with credit. Use an example from your own borrowing history to show them how much an item cost, how much you actually paid for it, and whether or not it was worth the extra expense
There are lots of fun money activities you can use for teaching kids about money. Try some of the following activities and use them to spark conversations.
1. Where we learn our money habits
Research shows that how we behave around money as adults is learnt early on when we’re young and observations we make of the world around us.
Use the following activities to better understand how children learn about money – whether that’s from you, the TV, or their friends.
Children learn by watching
When out food shopping, take them with you:
Make money-related decisions out loud so they can hear you. For example, why you chose the shop brand cereal over the better-known brand.
Compare prices out loud or ask them to tell you the different prices of products.
Ask them to load the shopping at the till and hand over the money.
Check your receipt in front of them.
Ask them about how they saw you handling money and why they think you handled it in certain ways. For example, counting your change before you left the shop.
Peer pressure
Get out all their ‘must have’ items bought over the last few years.
For each item, ask why they wanted it and how often they’ve used it.
This teaches them that wanting what their friends have is different from wanting something because they really like it.
2. Get them familiar with money
Handling money is an important part of gaining confidence around it. Start by letting them see and handle coins, notes, and credit/debit cards.
Personal stash
Give them a piggy bank or money box for their own cash.
Talk about why it’s important to keep money safe.
Introduce the idea of saving for something they really want.
Together, regularly count the money they’ve saved.
Counting your pennies
With younger children, put lots of 1p coins and one each of a 2p, 5p, 10p, 20p, 50p and £1 coin on a flat surface.
Build a pile of 1p coins next to each of the higher value coins to show the difference in their value.
Take down the piles and ask them to recreate them.
3. Learning what money is used for
As they become more familiar with money, they’ll start to understand how it’s used day to day, including the different ways of paying for things.
Doing things costs money
List the things you’ll be doing with them over the next few days, including going on public transport and buying snacks.
Put cash that covers these costs in a purse or wallet and ask them to pay for each item or activity using the money in the purse.
If they ask for something extra, explain this might not leave enough in the purse for the other things they want to do.
Setting a spending limit
Take them shopping for one day’s school lunchbox, giving them a spending limit.
Give them a few choices for each of their usual items.
Help them work out how much the different combinations will cost.
Make sure the lunch they take to school only includes what they could choose within their spending limit.
4. Let them have a go
To gain confidence in their ability to manage money, they need to see that you have confidence in them.
You can show this confidence in them through pocket money and helping them learn to save. In other words, let them have a go with money.
The most important message to get across to older children is ‘save, spend, save again.’
Pocket money
Perhaps give your child weekly pocket money to put in their money box or bank account. This doesn’t have to be much – the aim is to show confidence in their ability to manage their own money.
Maybe give them the opportunity to top it up by doing chores around the house.
Ask them how they feel about earning their own money and what they plan to spend it on.
You can gradually increase older children’s pocket money. This will help them learn to budget for their toiletries, clothing and social activities.
Work out what you spend on them in one of these areas in a year, divide by 12 and give this to them as a monthly allowance.
When they’re confident in one area, add another – and so on until they’re managing all their personal spending.
Save for something bigger
Talk to them about something they really want but that their pocket money won’t stretch to.
Help them work out how long it will take them to afford it if they save all, half or a quarter of their pocket money each week.
Help them decide their best savings option, then make a progress chart to keep them motivated.
Remember to praise them when they reach their goal.
5. Virtual money
Using mobile phones and other technology is a fact of life for most of us. This means children will be exposed to virtual money from a very early age.
If virtual money is already part of your life, don’t forget to show them that this part of your money management as well.
Watching the balance fall
Get the balance on your current account from a cash machine or via online banking and show it to them.
Use your card to shop for food, then get another balance and show them how it’s less than before.
Do the activity again before and after withdrawing cash or shopping online.
Digital world disconnect
Use a mobile phone to introduce them to the idea of ‘when it’s gone, it’s gone’.
For a younger child, set a monthly top-up limit on a basic, pay-as-you-go phone.
For an older child, use a contract phone that blocks any activity not included in the monthly contract fee.
Use game power
Many digital games are based on the player collecting tokens that allow them to progress through levels or to get extra features.
Turn household jobs into a similar game, giving them ‘tokens’ they can exchange for rewards, such as extra pocket money or a favourite treat.
With teenagers, this rewards system can lead to the idea of getting a part-time job to increase their spending power.
6. Budgeting for children
By now, you’ve seen how children of all ages benefit from being involved in money. Now it’s time to help them plan a budget for something they want.
By looking at all the costs in advance, they’ll find they can make their money go further.
Once children learn basic budgeting through direct experience, it’s there for life.
Exploring the full cost
Set a budget for a day out – this can be a big treat or just spending a day together near home.
List all the things you all want to do and how much each will cost, plus any freebies.
Remember to include all food, drink and transport costs (bus, train, car fuel and parking).
Ask them if they have any ideas for how you might save money on certain aspects of the trip.
Talk to them about what you could spend these savings on.
Plan to succeed
For older children, if their monthly social life allowance disappears too soon, discuss breaking it down into four weekly amounts and ways of making these last a week.
If they buy lots of clothes but complain they can’t afford the latest trainers, help them come up with a plan for saving over a number of months.
If their allowance covers most personal spending, remind them to put money aside for essentials like underwear and occasional costs like magazine or game subscriptions.
Why Is It Important To Teach Children About Money?
Children start to learn about money from early childhood. Parents and carers have the most important influence on how children deal with money in adult life. Teaching children about money helps them manage their own finances as they get older. There are lots of age-appropriate ways to do this by keeping it simple and making it fun.
Teaching kids about money equips them with the knowledge and skills they need to manage their money effectively now and in the future.
Children who do better with money tend to have parents/carers who talk to them about money and give them responsibility for spending and saving from an early age.
Take some time to think of your own money habits:
Did you pick up any of your money habits from your parents or caregivers?
What good money habits can you trace back to your childhood learning?
What bad money habits can you trace back to your childhood learning?
Teaching children about money will help make their future more secure. So the sooner you start developing their financial skills, the sooner they can start to hone those skills.
Tips to Teach Your Kids about Smart Money Management
Examine your own attitudes about money. Remember that children learn a lot about how to handle money by watching their parents. Be careful to set a good example – and don’t be afraid to admit if you don’t know how to do it. Now’s a great time to learn together!
Give your child an allowance and let them make their own spending choices with it. As soon as your child understands that people use money to buy things they want, give them a small weekly allowance. Raise the amount each birthday to keep it in line with your child’s reasonable personal spending needs. Encourage them to plan purchases in advance. Giving them an allowance helps you balance your budget too, but only give them as much as you can afford. A guideline is $0.50 – $1.00 / year of age of your child.
Expect your child to help with family chores. Helping around the house is part of being a family. Give allowance strictly for learning how to manage money. It’s better for you child to make small “mistakes” now than bigger mistakes later on.
Provide extra income opportunities. Occasionally, offer your child an opportunity to make a small amount of extra income by doing an extra chore. Help them decide what to do with the extra money they earn.
Teach your child to save regularly. Set up a process for saving money in a piggy bank or bank account. Regularly monitor how much has been saved, and talk to your child about goals for using their money.
Help your child discover the satisfaction of sharing. Encourage your child to identify ways they can spend money on helping others.
Show your child how to be a wise consumer. Before your child buys something, review alternative ways of spending the money to emphasize the necessity of making choices. Teach them to comparison shop for prices and quality. Discuss how advertisers persuade people to buy their products, and encourage your kids to be savvy about commercials.
Teach your child a healthy attitude towards credit. When your child is old enough to understand what credit is, consider allowing them to borrow a small amount of extra money from you to make a major purchase. Negotiate how much your child will repay each week from their weekly allowance, and then be very careful about collecting the money and keeping track of the remaining balance each week until the debt is repaid.
Teach your child the value of wise investments. When your child is old enough to understand interest rates and rate of return, play an investment game to learn about alternative investment strategies and financial risks. Websites can be very helpful.
Involve your child in family financial planning. Let your child see you planning your budget, paying bills, shopping carefully, and planning major expenditures and vacations. Explain the affordable choices, and allow kids to participate in the family’s decision making process. Set a family goal that everyone can work towards.
Earning money teaches children the value of hard work. It also gives kids the practice at money management skills. Teaching kids about money and how to save for goals, how to spend responsibly is really important these days.