6 Tips for Teaching Kids Financial Literacy Habits
Did you know that according to a survey from Teenage Research Unlimited, teens spend 98% of their money rather than saving it? Financial literacy is a skill that can help people thrive. Teaching your child money management skills from a young age can help them develop a mindful relationship with finances and avoid serious mistakes.
Read on to learn why financial education for kids is such a crucial skill to teach from an early age. Then, discover six quick tips and resources for building smart money skills as a family.
Why Financial Literacy Is Important for Kids
Why Financial Literacy Is Important for Kids
Why does financial literacy matter for your young children? Financial literacy helps children learn decision-making skills. As children decide how to save and spend money, they’ll be able to make thoughtful decisions about money and other life situations.
Plus, financial literacy can help children and teens prepare for emergencies. According to the Youth Financial Literacy Foundation, learning financial skills can teach children to prepare and have resources on hand for unexpected challenges later in life.
Best of all, financial literacy can be a path to empowerment for children. Children who learn financial habits early in life are more likely to become independent and equipped to manage their financial needs as they grow.
6 Tips for Teaching Children Smart Money Habits
1. Start Small
Money is a complicated topic, and it may take time for your child to fully understand its value. Starting small with something like an allowance can help children practice budgeting and making smart decisions.
If it’s not possible to give your children an allowance, that’s okay! Board games that use a money system (like Monopoly) can also help children learn how money works.
2. Teach Kids about Needs vs. Wants
A need is something a person requires to live or thrive. A want is something enjoyable but not necessary. Sometimes, children can have a hard time distinguishing between these categories.
Encouraging children to think about these two categories can help them approach money mindfully. Use this worksheet from Possible Finance to help your child practice sorting items into these categories.
3. Read Books About Financial Literacy
Stories can help children apply all kinds of helpful skills to their lives, including financial literacy.
4. Practice Budgeting Together
Teaching kids how to save money can help them avoid habits that lead to debt problems later on.
Encourage your child to save up their money for something they will really enjoy instead of buying small things whenever the mood strikes. Alternatively, you could save up for a fun activity as a family—like a trip to a restaurant or museum.
Practice Budgeting Together
5. Make Learning About Money Fun
Practicing financial literacy doesn’t have to be boring. By providing the right online resources, you can get your kid excited about learning how to manage their money.
6. Teach the Value of Giving
In an article with Forbes, financial journalist Cameron Huddleston explains that by teaching children to spend time giving to others in need, you can help them keep this value for their whole lives.
One way to do this is by saving up a family fund to donate to a charity or non-profit organization. If this might not be possible, you can also teach children to give their time by volunteering for a local cause.
Instilling good money habits in your children is arguably one of life’s most important lessons. Fortunately, with today’s technology, there are many ways to make learning about money fun for kids of all ages. With the right approach, you will be able to teach kids about money and valuable financial habits.
Use cash.
Showing kids purchases with a credit card won’t do much good. “Don’t [buy items] on credit cards or with checks, because that’s completely abstract,” says Eileen Gallo, coauthor of The Financially Intelligent Parent. “Let your kids hold the money and see the money leaving their hands.” For example, when your children are young, let them deposit coins in a parking meter.
Give them a modern piggy bank.
A traditional one-slit piggy bank doesn’t teach kids much about money management, says Susan Beacham, chief executive and cofounder of Money Savvy Generation in Lake Bluff, Ill. So Beacham developed the Money Savvy Pig, a see-through piggy bank with four slots: save, spend, donate, and invest. With the Money Savvy Pig, kids learn that money isn’t just for buying things.
Take advantage of the Web.
The Internet is full of age-specific money games for kids. Just last year, PNC Bank and Sesame Street teamed up to create fun videos and games that teach kids about money. Many children will find it easy and exciting to learn about money from Elmo and his friends. T. Rowe Price also offers The Great Piggy Bank Adventure, which uses a talking piggy bank to guide children through various financial lessons.
Let them play games.
Games make the topic of money fun for kids. “Games become something you can use to open the discussion, so it’s not always you preaching about money,” Beacham says. Grade-school children can play Planet Orange at OrangeKids.com, where they travel through the solar system by completing certain jobs to earn money for gas.
Show them how to manage their own money.
Let your child play an active role in how money is used by offering them an allowance. But consistency is important: Many parents promise an allowance to their kids but don’t deliver. If parents forget to pay the allowance, children learn that money promises can be broken.
Encourage them to give back.
In addition to having your child donate money (to a charity of their choice), make philanthropy more enjoyable by getting the whole family involved. Volunteer together at the local soup kitchen or participate in a fundraiser at the neighborhood park.
4 ways to teach kids about money before their habits are set at age 9
As adults and caregivers, we generally look for ways to help our kids “do it better” than we did, and for me as a parent, teaching my kid to handle money is definitely near the top of my list, as I’m sure it is for many.
Teaching kids about money responsibly at a young age will build positive habits and relationships with money that can yield much better adult decisions as the stakes get higher.
When should I start teaching my kids about money?
In her book, “Make Your Kid a Money Genius (Even If You’re Not),” author Beth Kobliner cited research showing children as young as 3 years old can begin to understand basic money concepts. I have a 2-year-old at home, and it is apparent that even at his young age he understands some of the most basic ideas, such as trading money to get what we want at the store, and not purchasing things unless they are on our “list.”
Children first learn about the world through observation. What they see you, other adults, and older kids doing around them is what they will try to replicate. My son is always watching and listening to what we do, which means we are constantly being presented with opportunities to deliver money lessons.
Money habits are set by around age 7 to 9
That’s right, people! Many of the habits we carry into adulthood, particularly around money, are set by age 7, according to research by Dr. David Whitebread and Dr. Sue Bingham. Things like planning ahead, budgeting, delayed gratification, and returning borrowed items are habits that we develop in childhood and then carry into our adult lives.
Thankfully, a 2014 study out of Brown University gives us a slightly larger window by pointing out that other habits, such as self-responsibility, are developed up until the age of 9. We know that habits like self-responsibility and the ability to make ourselves take action, even if we aren’t particularly excited about the task, are important to learn when it comes to managing money.
How do we foster positive money habits in our kids?
You can be a big part of money-habit formation for kids in your family, community, or workplace. It is less about providing formal lessons and more about you creating opportunities for kids to practice and learn with money. You can start as soon as you trust them to not put it in their mouth. Here are some things you can implement.
Let them practice handling small sums of money
Let your kid help you count out the cash to pay the bill at a restaurant and then hand over the money. Let your kids carry their money to the store and pay for a purchase. You, of course, can help them think through their purchase and what they can afford, but let them be the ones to handle the money and make the buying decision.
Consider giving an allowance
This has to be one of the most divisive topics for caregivers when it comes to their kids and money. Whatever your approach is to receiving or earning an allowance, the purpose of an allowance is to give your child the opportunity to handle small sums of money on their own. They need to have decision-making power with this money and the opportunity to fail. Failing now with tiny sums of money means they get to learn the lessons early that many of us don’t get to until adulthood.
Build a desire to save
This starts by first encouraging your child to spend. It seems counter-intuitive, but if you dictate saving to kids, particularly for long-term goals like cars, college, and retirement, they will view it as if their money is being confiscated.
Teaching kids to want to save starts with spending. Encourage them to identify wants and let them buy them with their own money. When they inevitably start identifying wants that cost more than they have, jump in and show them how to save for the goal. Practice “delayed gratification” for something small now, to get something better later.
Gradually explore things that are more expensive and require longer periods of saving. Suggest splitting their money between spending now and saving for bigger purchases that they want. They will build a positive relationship with saving and a healthy understanding of spending.
Talk about choices when your kids want to spend their money
But don’t stop them from buying unless it violates family rules or is a safety concern. “Opportunity cost” can be explained by identifying all the things your kid could do with the money they are about to spend and making sure they know that saying yes to one thing means saying no to all the others. After that, your job is done, and they need to be allowed to buy the junk toys that will break in a day or the candy bar that will be forgotten in an hour. They’ll learn that waiting and being patient can mean better outcomes later.
Building positive habits comes down to you being a positive role model, demonstrating good money habits, having age-appropriate money conversations at home, and giving opportunities to practice handling money in real life and through play. Practice these techniques and you are well on the way to molding a future responsible money manager.
Teaching financial education to kids can be a daunting task, but introducing fundamental financial concepts now can set them up for a stable future. Instilling the building blocks of saving, spending, and making money early on can help increase prepare your children to be financially wise.
Not sure how to teach kids about money? Here are six tools you can use to help teach your kids about money.
1. Give small children a clear piggy bank
Rather than using the traditional opaque piggy bank, use a see-through container to help young children see their savings visually. Money is an inherently abstract concept and the more concrete you can make it for children, the better.
Once your kids start learning math, it can be helpful for them to roll the loose change from their piggy bank so they can see how it adds up to form greater dollar amounts. Physically handling rolls of coins can help children conceptualize the building blocks of a dollar.
2. Create a budget from their allowance
Budgeting skills aren’t always taught at school, so it’s best to proactively guide your children as soon as they begin receiving an allowance.
There are various schools of thought on an allowance. Some people think it could either be earned based on a rate of pay done for household chores. Other parents provide spending money for their children as needed. Some parents opt for a hybrid approach where you only pay for chores that are outside what is considered “normal” everyday responsibilities.
There is no hard and fast rule on how much allowance to allot each week but whatever you land on, help your child create a budget to prepare them for bigger budgeting later in life.
Using the example of the clear jars, you could mark three jars as either savings, charity, and spending. Then, work with your child to decide how much of their weekly allowance to put into each jar. The visual of the jar creates accountability.
3. Help them open a bank account
As parents we must prepare our children to be successful in life and money management is a crucial step. One way to do this is to open a savings account. Children can see the interest rate earnings increase their savings over time and they’ll have access to real-life financial tools as they mature.
If your child is tech-savvy enough to go online, teach them how to navigate through a bank’s website and see how account statements are laid out. Similarly, having your child physically visit a bank teaches them bank etiquette and healthy financial habits, like keeping receipts and interacting with tellers. Plus, many banks have programs designed around children to make banking a fun and positive experience.
4. Teach your teens how to make money
By the time children reach their teens, they will need to have a checking account so they can spend money with a debit card on their own purchases. This places bigger importance on how to make money. There are many jobs done for cash so that teens can see immediate earnings. Cash jobs, which in turn also add job experience, might include:
Mowing lawns
Babysitting
Starting an online business
Shoveling snow
Getting a part-time job
Giving teens an opportunity to make their own money helps prepare them for adulthood and learn how to care about their finances.
5. Play games that involve money
Games that involve money are helpful for younger children to start understanding how money works and how it is used in daily living. For children and toddlers, try playing “store” by setting up a fake storefront and having them hand over play money in exchange for goods. With older children, playing games like Monopoly introduces them to how money works.
6. Teach your kids the concept of credit
Good credit is important for many aspects of adult life such as renting an apartment or buying a car or house. Understanding the concept of credit at a young age can help your children avoid bad debt when they become of the age that they qualify for credit cards.
Start teaching them how credit works. You can do so by showing them your credit report or discussing your mortgage or personal loans with them, if appropriate. As your teens mature into adults, start helping them prepare to build a credit score early.
Most parents are quick to teach their kids about staying safe and being polite, but valuable life lessons about money can seem more daunting. However, parents are a child’s biggest influencers when it comes to money — after all, you’re their only role model when it comes to spending and saving your hard-earned cash — so it’s important to teach your offspring how to handle finances. What should you teach your kids to help them grow into financially mature and independent young people? Here are five important lessons for money management for children need to hear from their parents.
Lesson 1: Frame Wants Versus Needs
Young children and even many teenagers tend to undervalue the difference between wants and needs when it comes to spending money. It is important for parents to demonstrate that there is a difference between absolute necessities like housing, bills, and food, and items that may seem important but are non-essential like new mobile phones or clothes. Teach them that it’s vital to keep money aside for required payments before they start spending on non-necessities.
Lesson 2: Put Costs Into Perspective
Your kids probably think that they’d be rolling in it if they earned an adult wage. In reality, they are probably underestimating how much money is absorbed by taxes, a mortgage, childcare, and other important payments. When your child asks for an expensive games console or toy, put the price into perspective by discussing how much people in different jobs earn and where their money might go before they pay for that item. It might be helpful to frame it in terms of how many hours that child would have to work to earn the money if they were earning a typical wage. It’s always a good idea to start helping kids learn about their spending habits and choices by empowering them to earn the money for items they want by doing chores or extra tasks to help.
Lesson 3: Encourage Good Saving Goals
Teaching your child how to save their money is one of the most helpful things you can do for their development. Encourage them to save a portion of pocket or birthday money towards something they have asked for like a new gadget. You could even offer to give them a little interest if they manage to save up for a certain period of time. This lesson will last long into the future and play a huge role in your offspring reaching financial independence as an adult.
Lesson 4: Search For The Best Deals
Show your kids that prices can vary hugely across the same products — not all houses, computers, and shoes are priced equally, but sometimes it can be worth paying more for a better quality product. This lesson is one that many adults take for granted but it can lead your child in the right financial direction from an early age. It can be as simple as showing them that two off-brand toys cost the same amount as one branded product, and asking them to think about the best combination of quantity and quality.
Lesson 5: Credit Card Debt Is Serious Business
As your kids hit their teen years and start thinking about jobs, moving out, and independence, it’s vital that you teach them about credit cards and how to avoid credit card yet. Stress the fact that credit cards should only be used with caution and a plan to pay off what is charged monthly. Also, you should stress that credit cards certainly aren’t for discretionary spending. Remind them that credit card debt can affect their credit history and make it difficult for them to buy a house or a car or even get a job in the future.
Like it or not, money is a central part of all our lives, so teaching your kids to be financially responsible before they start earning money will pay off down the line.
Board games not only make for wonderful nights spent with family but, depending on the game, they can make for wonderful teaching tools for your children, too. If you’ve thought of teaching kids about money, along with an introduction to investing, several board games can go a long way to teach innumerable lessons. Here are seven of the best money games for kids:
Cashflow for Kids
Created by Robert Kiyosaki, the acclaimed author of Rich Dad, Poor Dad, this game makes for an excellent means of teaching younger children basic education concerning finances. Good for two to six players and for any children over the age of 6 years old, Cashflow for Kids is one of the best money games for kids, offering players personal financial lessons, from basic investing to money management, personal accounting to tracking return on investments.
Buy It Right
A popular game among early-education teachers and parents intrigued in teaching the basics of money transactions, Buy It Right offers players a simple, easy-to-understand game to learn the basics of math calculations, including addition, subtraction, multiplication, division, and decimals.
Although it’s intended for children between 4th and 6th grade, parents can simplify the game for children of younger ages, where they are allowed to partake in simple transactions while attempting to calculate the price of what they buy. Kids can even use a calculator to make it easier for them to practice their math skills while learning real-life skills.
The Allowance Game
An easy game even for your youngest children, The Allowance Game provides families with an easy way to teach their children the basics about money management and money earned. By having your children participate in numerous chores around the board, which provide them with a certain “allowance” as payment, they’ll quickly learn ways to earn money around the house while working.
Winning the game might feel convoluted, as it entirely comes up to luck (based upon a dice roll). But it also gives your children the opportunity to learn the importance of undertaking chores, along with other social responsibilities that come in tow.
Money Bags
A simple yet colorful game, Money Bags is a surefire way to teach your children the basics of counting and divvying out money. Subtitled as a “Crazy Coin Counting Game,” this game brings players along a winding path to complete basic, practical chores around the house for money. If they don’t complete chores, players must spin a wheel to determine what coins they are unable to “collect.” With this in mind, they must earn their payment for said chores by tallying up their payment without using that one coin. For example, if they were to earn $0.80 for a simple chore, but can’t use quarters, they would have to make a combination of dimes, nickels, and pennies to earn their pay.
After spending enough time collecting coins in this game, it might be worth your time to get your child a special coin of their own to commemorate their gained knowledge.
Exact Change
What seems like a cousin to UNO, Exact Change is a game where a player’s main goal is to get rid of all of their cards before anyone else. While this might not exactly a board game, it offers an easy way to teach your kids about basic money transactions.
You play by matching and discarding cards from your hand. Cards go face down onto the table when discarded. Players can get rid of cards that either have the same value, the same color, or multiple cards that add up to the same value. For example, if the top card on the pile is $1.00, a player could discard three cards of $0.50, $0.25 and $0.25 to match the hand.
The Game of Life
A classic staple when it comes to lengthy family games, The Game of Life has been entertaining, frustrating and educating families since its release. Usual versions of the game can be played with anywhere from two to six players, and a player wins when they accumulate the most money while moving through the various stages of human life.
This game is especially helpful for teaching players how basic life choices impact our financial status. Your child will learn how their occupation or having a family might influence their decisions. This game is all about playing in moderation when it comes to your finances and seeing how taking chances affects your net worth.
Monopoly
Monopoly is one of the most reputable board games of all time. It’s not only known for its methods of teaching money management, but also for how ruthless it can also be. Players move around the board collecting money with every turn while landing on properties which they can buy, mortgage and renovate. The game also brings in the aspect of luck with landing spaces such as “Community Chest” and “Chance,” which can either hurt or harm their progress.
While Monopoly can create some tense relationships among family members, it’s a great game for older children to learn how to best manage their money. They’ll learn to make smart investments along the way while saving up to avoid becoming bankrupted by increasing rent prices. The game also gives simple insight into the real estate industry, which might just benefit your children for the future.
As a parent, you want the best for your children. This doesn’t necessarily mean you want them to have the best clothes, the latest toys or coolest gadgets. Most likely, it means you want them to be safe and secure. And you want to lay a foundation that they can build upon to do well in life.
The question, then, is whether you’re teaching your children a key lesson that will impact whether they will do well. That lesson is about money.
“Without a working knowledge of money, it is extraordinarily difficult to do well in life,” says Sam X Renick, co-creator of Sammy Rabbit, a children’s character and financial literacy initiative. “Money is central to transacting life, day-in and day-out. Where we live, what we eat, the clothes we wear, the car we drive, health care, education, child-rearing, gift giving, vacations, entertainment, heat, air-conditioning, insurance—you name it, money is involved.”
Yet, plenty of parents aren’t helping their kids become financially literate. T. Rowe Price’s 11th Annual Parents, Kids & Money Survey found that nearly half of parents said they miss opportunities to talk to their kids about money and finances. And a quarter said they are very reluctant or extremely reluctant to discuss financial topics with their children.
Kids, on the other hand, are eager for their parents to share their wisdom. Half of the children surveyed said they wish their parents taught them more about money.
Even if you’re not teaching your kids, they will learn lessons about money one way or another. If you want to play a key role in shaping your children’s feelings, thinking and values about money, you need to give them the gift of financial literacy from an early age. Here’s how.
Start With the Basics at a Young Age
Renick has been teaching kids about money through his Sammy Rabbit storybook character since 2001. He has found that the earlier you start a child’s financial education process, the better. Lessons should begin before age seven, he says, because research shows that money habits and attitudes are already formed by then.
Once your kids are old enough to know they shouldn’t be sticking pennies in their mouths, you should introduce them to coins and cash. Explain what money is and how it is used. Actually, showing them how money works is more effective. So let them see you making purchases with cash.
Even if you pay with a debit or credit card, explain to your kids that you’re using your money to make purchases. Chase Peckham, director of community outreach for the San Diego Financial Literacy Center, did this with his son and daughter when they were preschool age. When they shopped together, Peckham would show his kids receipts with the amount he paid. “By doing it over and over again, it became habit to them,” he says. “As they got older, they started to understand. That’s how we introduced money.”
Peckham says that his son understood how money worked by the age of 4, thanks to the receipt strategy. He had more trouble getting through to his daughter. But, by being consistent, he knew that “the light bulb would turn on” for her—and it did.
Instill a Habit of Saving
Your kids’ early interactions with money will likely involve spending. They see you using it to purchase things, including things for them. So it’s important to teach financial education for kids from a young age that money isn’t just for spending—they should be saving money regularly, too.
Learning to save isn’t just an essential money habit. “Saving teaches discipline and delayed gratification,” Renick says. “Saving teaches goal-setting and planning. Saving stresses being prepared. Saving builds security and independence.”
Help your kids get in the habit of saving by giving them a piggy bank or savings jar where they can deposit coins or cash. Then use short, simple messages to encourage your kids. Renick offers these examples:
Saving is a great habit.
I love to save.
It feels good to save money and build my future.
With young kids, though, you’ll likely have more luck teaching them to save for short-term goals—such as a toy they really want—rather than for the future, says Tim Sheehan, co-founder and CEO of Greenlight, a debit card for kids with parental controls. The father of four says that encouraging his kids to set short-term goals when they were little helped them learn the value of delayed gratification. As they have gotten older, they are now able to save for longer-term goals.
Parents also can encourage their kids to save more by agreeing to match the amount they save dollar for dollar or by a certain percentage. If your children are old enough to advance from a piggy bank to a real bank, you could take advantage of a service such as Greenlight or FamZoo. These prepaid debit cards and apps allow parents to transfer money to their kids and pay them interest—at a rate of their choosing—on any of the money the kids choose to stash in savings.
Create Opportunities to Earn Money
Kids need to have money of their own so they can learn how to make decisions about using it. An allowance can accomplish that. However, you should consider requiring your kids to do certain chores to earn their allowance. “Just about everyone values money they earn differently than money they receive,” Renick says.
Both Peckham and Sheehan say they wanted their children to learn that money is earned. There are some chores the kids have to do without pay because they’re expected to help out as part of a family. But if they want to get paid, they have to complete certain tasks.
Sheehan says his two youngest children who are still at home get a weekly allowance in an amount equal to their ages. Peckham did that initially with his kids but says they now get a “salary” that is deposited directly into their bank accounts each month. His kids have negotiated raises for their salaries by agreeing to take on additional jobs around the house, he says.
Help Kids Learn to Make Smart Spending Decisions
In addition to wanting his kids to understand that money is earned, Sheehan introduced an allowance system so they could learn to live within a budget. His two youngest children, who are 16 and 11, would constantly ask for money and “spend like drunken sailors,” Sheehan says. When he started paying them an allowance, he told them that was all the money they would get and that it was up to them to manage it.
“Amazingly, it worked,” he says. They track how much they have coming in and going out and how much they’re saving using the Greenlight app. Learning how to budget now will help them when they enter the real world, Sheehan says.
Peckham has allowed his kids to make decisions about their money since they first started earning an allowance. He gave them three jars for spending, saving and giving. Peckham told his kids they had to put some of their allowance in each jar but didn’t specify how much. The decision was up to them.
Peckham also is teaching his kids that spending isn’t always about buying things you want. He wants them to learn that they will have to spend money on things they need when they’re adults and can make the choice to pay people to do things for them. So if his kids don’t do certain things they’re expected to do to help out around the house, it will cost them.
In essence, they’re paying their parents to do those things for them. And the money comes out of their allowance. “I wanted them to make decisions about what they were willing to pay for and what they weren’t,” he says. “I want them to realize, for every choice they make, there will be a repercussion. Personal finance is about decisions.”
Show Kids the Value of Giving
A key reason that it is important for you, as a parent, to teach your kids financial lessons is because you can share your money values through those lessons. If you value giving to others, you can instill that value in your children by helping make it a habit for them from an early age.
You could do as Peckham did with his kids when they were little and create spending, saving and giving jars. The Greenlight and FamZoo apps allow kids to create giving accounts. Or you could help your kids set up a special savings account for giving.
Teach Kids How Their Money Can Grow
Saving money is a great habit. But if you want your kids to learn how to truly build wealth, teach them about investing, Sheehan says. “I’ve tried to pass on this knowledge and insight to my kids,” he says.
All four of his children have custodial investment accounts he set up for them (minors can’t open their own accounts). Sheehan started teaching his two oldest children, who are 20 and 18, when they were young about how they could invest their money and see it grow at a faster rate. He’s still working to get his younger two children to understand. “Some are ready for it at a young age,” Sheehan says. “Some maybe a little bit later.”
If you don’t understand investing well, you could give your kids a book that explains how it works. Renick says his father introduced him to the personal finance classic The Richest Man in Babylon when he was 12 or 13. “That book really motivated me to want to invest and spend less than I earned,” Renick says.
You can help children get started investing by opening a custodial account with a brokerage such as Charles Schwab, E*TRADE, Fidelity or Stockpile. And Greenlight will start offering an investment option with its accounts later this year.
Model Good Financial Behavior
Just as important as the lessons you teach your kids about money are the ways you discuss and handle money when you’re around them. For example, if you complain about having to spend too much on certain things and then take your kids on a shopping spree, you’re sending mixed messages.
Instead, make sure you model the behaviors around money that you want your children to adopt. Renick says that not only would his father encourage him and his brothers to do work around the house, but also he would jump in and help them out.
“Some of my favorite childhood memories are of having my father assist me washing cars and cutting grass,” Renick says. “He would also use those experiences to talk to my brothers and me about the importance of work and managing our money. He would share things like, ‘It is not how much you make, but what you do with what you make, that makes a difference.’”
If you want your children to develop good spending and saving habits, they need to see you making smart spending and saving choices. In short, practice what you preach. And preach with consistency. Educating your children about personal finance is a process that can take time. But if you put in the effort and continuously communicate a clear message about money, you will instill good habits that will serve your children well.
Kids and Money: Managing Allowances In The Digital Age
Many parents choose to give their children a modest amount of money, or an allowance, to help them learn about managing their own finances. Study after study shows that the earlier we introduce our children to certain topics about money, the more likely they are to make smart financial choices as adults.
An allowance can help a young person realize that they cannot buy everything they want. By providing kids with their own funds to manage, you can help them learn to budget, save, and make smart spending decisions.
Things have changed since you were a kid. It’s different for kids today to learn the value of a dollar. Various cash apps and digital purchases make money less tangible. Here are a few tips to help you manage allowances in the digital age.
Allowance Best Practices
There are several strategies for teachingmoney management for children. The key is to keep it simple, manage expectations, and communicate the “why” behind your decision. Here are a few ways you can give your child an allowance.
Regular Allowance
The regular allowance is a consistent amount of money you give to your child. Whether you choose to give them the money weekly or monthly, the amount is the same and is unconditional on other factors.
Some experts say this is a great way to help children plan ahead and think about budgeting. Others argue that children ultimately view this as an entitlement that can negatively impact the way they view money.
Allowance When Needed
This is when parents give their children money only when it’s needed and when the child asks for it. As the parent, it’s up to you to decide how necessary the purchase is and whether or not you have the budget allocated for the child.
According to some experts, this is a good strategy for teaching kids to be smart about money. They believe that requiring kids to ask for the money forces them to think it through and therefore improves their overall financial literacy. On the other hand, some say that they don’t learn enough about budgeting and saving because in this case Mom and Dad are doing the thinking for them.
Allowance Tied to Chores
Many parents will tie their child’s allowance to chores they are expected to help with around the house.
Supporters of this strategy say that it helps children make the connection between work and play. And that kids will have to understand that in order to purchase something they want, they’ll have to put in the work. However, some experts suggest that this could lead to bargaining over helping out around the house. And that if a child doesn’t need money, he or she may be less willing to complete their household duties.
Allowance Tied to Grades
Another popular method for gauging allowances is for parents to tie them to the child’s grades at school. Many money experts say this is a great way to encourage children to do their best at school, which could positively impact their future. The only real problem here is that parents must set clear expectations and decide when it’s necessary to raise the bar.
When it comes to raising kids, most parents either look forward to the teen years . . . or dread them. But no matter which side of the spectrum you’re on, the end goal is still the same: help them become successful contributors to society. But what does that even mean?
It means showing them the ropes when it comes to adulthood, things like getting up on time, taking a regular shower, and learning how to make a budget. Now’s the time to start teaching teens about money—how to earn it, save it and spend it wisely.
Personal Finance for Teens
Think of your teen as an adult in training. It’s your job (as the adult of the house) for teaching teens about moneywhat they need to know for that moment you send them off to college, trade school, or even their apartment. But you don’t have to be a finance professor to teach your teen how to save money. You can show them by example. Remember: More is caught than taught. You’ll want to show them how to earn money, create a budget, give, save and spend wisely.
Earning Money
If you’re like most parents, you’ve probably been eagerly waiting for the day your kid is old enough to start helping around the house. You may have started out asking them to help you wash the dishes, sweep the floor, or feed the dog. But now that you’ve got a teenager in your house, you’re probably off-loading the big-item chores like mowing the lawn or taking out the trash (woo-hoo!).
Instead of giving them an allowance just for breathing, you might want to think about giving them a commission. Not only will this strip them of any entitlement, but it’ll also help them see the relationship between hard work and money earned. When they do their chores, they’ll earn a commission. And when they don’t, they’ll realize they’ve made what they earned—nothing.
Is your teen old enough for a real-life job? Even better. Working for someone else, earning a paycheck, and seeing Uncle Sam take a chunk of their hard-earned dollars will help teach your teen about money—quickly.
Setting Up Bank Accounts
Just like losing a tooth or learning to drive, setting up your teenager’s first bank account is a rite of passage. By now, they’ve probably earned some money and have outgrown that piggy bank they got for their first birthday. You know what that means—it’s time for a real bank account. You probably don’t want to connect it to your own in case they overdraft their account or their identity gets stolen. But you will want to be the signer on the account so you can see their spending behavior. Remember: This is a great opportunity to teach them how to reconcile their account, keep track of spending, and learn to save.
Giving
You simply can’t go wrong with giving, because that’s what God’s called us to do, right? Something changes in your spirit when you become a giver. You focus less on yourself and see the needs of others more. One of the best things you can do for your kids is teach them to appreciate and understand the power of giving before they go out on their own. Plus—it’s the most fun you can have with money.
When you show your teens the concept of giving at an early age, they’ll remember how good it felt and (hopefully) continue the pattern as they handle their own finances.
Saving and Spending
Teenagers saving money. You’re probably thinking those three words don’t even belong together. But if you want your teenager to grow up into an independent, responsible human, you’ll have to show them how. It starts with not giving them money for every bout of want-itis they go through. Teaching them how to spend money is also important. Just because they have money doesn’t mean they need to burn a hole through their pocket.
Teach them about having long-term savings goals. At this age, all they can probably talk about is getting a car. If they want one, they can pay for it. Work with them on creating a plan for their money: what they need to buy a car and what they need to save. Early exposure to goal setting helps to give them patience and vision, two things they’ll need in life.
How to Teach Budgeting to Teenagers
Sounds intimidating, right? We get it—but it doesn’t have to be! Incorporating some family budget meetings will help you show your teen how to make a regular budget each month before the next month begins.
Here’s the good news: It doesn’t have to be complicated. Have your teen do a zero-based budget. Show them how to list all of their expenses, setting aside money to give, save and spend—like we mentioned earlier. Once they’ve assigned every dollar a place and their budget equals zero, they’re done!
The key here is repetition. Make this a family rhythm and sit down with your teen to show them how to do a budget for a few months. Once they get the hang of it, your check-ins won’t be as time-consuming. Not only that but we’re guessing you’ll be amazed at how well they do.
If you don’t teach your kids how to manage money, somebody else will. And that’s not a risk you want to take! I’ll show you how to give your kids the head start you wish you had and set them up to win with money at any age.
How to Teach Pre-Schoolers and Kindergartners About Money
1. Use a clear jar to save.
The piggy bank is a great idea, but it doesn’t give kids a visual. When you use a clear jar, they see the money growing. Yesterday, they had a dollar bill and five dimes. Today, they have a dollar bill, five dimes, and a quarter! Talk through this with them and make a big deal about it growing!
2. Set an example.
A study by the University of Cambridge found that money habits in children are formed by the time they’re 7 years old. Little eyes are watching you. If you’re slapping down plastic every time you go out to dinner or the grocery store, they’ll eventually notice. Or if you and your spouse are arguing about money, they’ll notice that too. Set a healthy example for them and they’ll be much more likely to follow it when they get older.
3. Show them that stuff costs money.
You’ve got to do more than just say, “That pack of toy cars costs $5, son.” Help them grab a few dollars out of their jar, take it with them to the store, and physically hand the money to the cashier. This simple action will have more impact than a five-minute lecture.
How to Teach Elementary Students and Middle Schoolers About Money
4. Show opportunity cost.
That’s just another way of saying, “If you buy this video game, then you won’t have the money to buy that pair of shoes.” At this age, your kids should be able to weigh decisions and understand the possible outcomes.
5. Give commissions, not allowances.
Don’t just give your kids money for breathing. Pay them commissions based on chores they do around the house like taking out the trash, cleaning their room, or mowing the grass. Dave and his daughter Rachel Cruze talk a lot about this system in their book, Smart Money Smart Kids. This concept helps your kids understand that money is earned—it’s not just given to them.
6. Avoid impulse buys.
“Mom, I just found this cute dress. It’s perfect and I love it! Can we buy it please?” Does this sound familiar? This age group really knows how to capitalize on the impulse buy—especially when it uses someone else’s money.
Instead of giving in, let your child know they can use their hard-earned commission to pay for it. But encourage your child to wait at least a day before they purchase anything over $15. It will likely still be there tomorrow, and they’ll be able to make that money decision with a level head the next day.
7. Stress the importance of giving.
Once they start making a little money, be sure you teaching kids about money. They can pick a church, charity or even someone they know who needs a little help. Eventually, they’ll see how giving doesn’t just affect the people they give to, but the giver as well.
How to Teach Teenagers About Money
8. Teach them contentment.
Your teen probably spends a good chunk of their time staring at a screen as they scroll through social media. And every second they’re online, they’re seeing the highlight reel of their friends, family and even total strangers! It’s the quickest way to bring on the comparison trap. You may hear things like:
“Dad, Mark’s parents bought him a brand-new car! How come I have to drive this 1993 Subaru?”
“Mom, this girl at school got to spend $10,000 on her Sweet 16 party. I want to do that too!”
Contentment starts in the heart. Let your teen know that their Subaru (although not the newest car on the block) is still running well enough to get them from point A to point B. And you can still throw a memorable, milestone birthday party without spending a chunk of your retirement savings funding it!
9. Give them the responsibility of a bank account.
By the time your kid’s a teenager, you should be able to set them up with a simple bank account if you’ve been doing some of the above along the way. This takes money management to the next level, and will (hopefully) prepare them for managing a much heftier account when they get older.
10. Get them saving for college.
There’s no time like the present to have your teen start saving for college. Do they plan on working a summer job? Perfect! Take a portion of that (or more) and toss it in a college savings account. Your teen will feel like they have skin in the game as they contribute toward their education.
11. Teach them to steer clear of student loans.
Before your teen ever applies to college, you need to sit down and have the talk—the “how are we going to pay for college” talk. Let your teen know that student loans aren’t an option to fund their education. Talk through all the alternatives out there, like going to community college, going to an in-state university, working part-time while in school, and applying for scholarships now.
12. Teach them the danger of credit cards.
As soon as your kid turns 18, they’ll get hounded by credit card offers—especially once they’re in college. If you haven’t taught them why debt is a bad idea, they’ll become yet another credit card victim. Remember, it’s up to you to determine the right time you’ll teach them these principles.
13. Get them on a simple budget.
Since your teen is glued to their mobile device anyway, get them active on our simple budgeting app, EveryDollar. Now is the time to get your teen in the habit of budgeting their income—no matter how small It is. They should learn the importance of making a plan for their money while they’re still under your roof.
14. Introduce them to the magic of compound interest.
We know what you’re thinking. You can barely get your teen to brush their hair—how in the world are they supposed to become investment savvy? The earlier your teen can get started investing, the better. Compound interest is a magical thing! Introduce your teen to it at an early age, and they’ll get a head start on preparing for their future.
15. Help them figure out how to make money.
When you think about it, teenagers have plenty of free time—fall break, summer break, winter break, spring break. If your teen wants some money (and what teen doesn’t?), then help them find a job. Better yet, help them become an entrepreneur! These days, it’s easier than ever for your teen to start up their own business and turn a profit.
Tim Connolly 