If you’re a parent, you’ve likely taught your kids to brush their teeth and eat their veggies. But have you talked with them about saving for a rainy day?
“Financial literacy” refers to the skills and knowledge that enable us to manage our money effectively. Teaching kids sound monetary habits from an early age sets them up to make smart, confident financial decisions as they grow — and can improve their overall well-being.
The No. 1 source of stress in many people’s lives is money, says Tim Ranzetta, cofounder of Next Gen Personal Finance, which provides personal finance curriculum and professional development for teachers. He notes that giving kids a sense of control over money can enhance their long-term emotional health.
Those effects extend beyond their bank accounts. A study published in 2021 found that children who learn money skills, like budgeting and saving, are more likely to maintain those habits in adulthood — and have stronger romantic relationships, too.
Fortunately, you don’t need to be a finance expert or solve your own money issues to teach your kids healthy habits. “Start before you feel comfortable,” advises Linda Matthew, owner of MoneyMindful Personal Finance Coaching. “Don’t wait until you have it all together.”
Money Lessons for Every Age
It’s almost never too early to teach kids about money — nor is it ever too late. The main objective is to give them opportunities to gain knowledge and skills in a low-stakes environment.
YOUNG KIDS
(Ages 3–8)
Money-related conversations with young children can be simple and fun. “You’re just getting them used to using money as a tool,” says John Lanza, author of The Art of Allowance.
Focus on emotional skills. “Young children don’t understand money very well, but they understand emotions,” says Anthony Delauney, author of the Owning the Dash series of children’s books, which introduce financial lessons.
In one book, a brother and sister are each given 10 jelly beans and told they’ll earn more if they don’t eat them right away. The book explores patience and kindness as the brother, who resists temptation, helps his sister get a second chance to grow her stash after she eats her jelly beans.
Start an allowance. Giving kids as young as kindergarten age an allowance can help them practice using money. Rather than tying it to chores, think of an allowance as part of their education, Matthew suggests.
Delauney agrees, noting that associating money with chores may have the adverse effect of teaching kids to see their contribution to the household as negotiable as they get older.
Make money tangible. Let children see and handle money. Explain how you earn it and talk about things in their lives that money buys. Encourage them to run a make-believe store or restaurant, and when you buy something at a real store, let them hand over the bills and take the change.
Introduce saving, spending, and giving. Rather than a piggy bank, some experts suggest giving children three clear jars labeled Save, Spend, and Give. Offer parameters for how to divide money they receive.
For example, if they receive five dollars, have them put one dollar in the Save jar and one in the Give jar, and let them choose where to put the other three. “The more a child feels like they’re in charge of the decision, the more they’ll take ownership of that decision,” says Delauney.
TWEENS
(Ages 9–13)
Preteens often begin to compare themselves with peers, which makes this a great time to introduce foundations of earning, saving, and not trying to keep up with the Joneses’ kids.
Give them a debit card. Kids this age can grasp more abstract concepts of money, and debit cards help them use money in a digital world. Many debit cards on the market for kids (which are typically tied to checking accounts) have digital versions of the Save and Spend jars. As the parent owner on these accounts, you have visibility into your child’s activity and can guide their decision-making.
Encourage entrepreneurship. Some kids are satisfied with allowance money, but others are ready to earn more. Hosting lemonade stands or craft sales, or doing odd jobs around the house — ones you might otherwise do or pay others to do — are great ways for kids who want more money to earn it, says Lanza.
Emphasize saving and mindful spending. Saving makes more sense to kids when they can imagine what they’re saving for, so let them set goals that matter to them. Have them paste a picture of their goal on their Save jar as a reminder.
If they want to dip into their savings for something they haven’t been saving for, Lanza suggests instituting a weeklong waiting period to temper impulse buys.
But don’t be afraid to let children make mistakes, Ranzetta adds. “At some point they’re going to be out of your house, and it’s better for them to learn these lessons early when they provide teachable moments.”
Support giving. Facilitate regular conversations about what kids might do with their Give money. Help them identify charities or causes that they want to support and gifts they’d like to buy for others. You might offer to match their gifts (at any percentage — it doesn’t have to be 1:1) to increase their impact.
ADOLESCENTS
(Ages 14+)
Each step toward adulthood is an opportunity for real-world financial lessons, says Ranzetta. “The lens I think about is money milestones.”
Put them to work. Encourage teens to take on neighborhood gigs like babysitting, lawn mowing, or dog walking. Once they’re old enough, part-time jobs offer opportunities for more sophisticated money lessons.
“They’re going to read the pay stub, and now you can have a conversation about FICA and other deductions,” Ranzetta notes. “They’re going to file a tax return. They may want to set up direct deposit or automatic savings.”
Tie an allowance to budgeting. Increase a child’s allowance as they mature, but make them responsible for purchasing some of their own necessities, such as clothes or gas. Ranzetta suggests spreading an allowance out over time.
“Instead of weekly, pay kids monthly,” he advises. “And when the money runs out, it runs out.” This teaches them to plan and make more careful decisions.
Introduce investing. Consider opening a custodial Roth IRA for children under 18. You’d manage the account, but they’d contribute to it with their own earned money.
“I don’t think teens are too young to talk about the stock market,” notes Ranzetta, who suggests letting kids invest a small amount in a company they know something about. “Go back every few weeks and talk about how their investment did and why.”
Don’t worry if you’re not up for more sophisticated investing, says Delauney. “If a child knows how to balance a budget, that’s going to be worth 10 times more than knowing how to place a proper stock trade.”
Talk about debt and credit. Staying out of debt — particularly high-interest credit-card debt — is a crucial lesson for kids moving toward adulthood. And they may need a good credit score in a few years to rent an apartment or buy a car.
If you have good credit, you might sign your child as an authorized user on your card, which builds their credit history. Once they’re old enough to get their own credit card, suggest that they put a $500 limit on it and pay it off every month. “Teach them to play the credit-score game without getting in over their heads,” Matthew says.
Adds Lanza: “Ultimately, you’re taking children on a journey toward money empowerment, which is more about becoming than it is about being. It’s fun when you realize how much you’re learning on the journey with your kids.”
Balance
Explore more empowering strategies to support your efforts to live in (closer) alignment with your values at our Balance department.
This Post Has 0 Comments