Teaching Kids to Be Money Smart

When raising your children, it’s only natural to want to do right by them. And one way to do that is to teach them essential life skills, like being financially savvy. In fact, many adults run into financial trouble simply because they weren’t given any lessons on finances at a young age.  

Many adults say they wish someone had taught them about money when they were younger, especially once they begin managing budgets, debt, and savings on their own.  

That’s just one of the reasons it’s important to share money lessons with your kids before they have a chance to experience any financial hardships of their own.  

While schools can reinforce these lessons, parents are often the first and most important teachers when it comes to money habits.  

Here are some tips to keep in mind when teaching your youngsters to be money-smart:  

The earlier, the better  

It’s best to start a finance discussion when your children are young, before they are required to manage their own money.  

Children may not fully understand the idea that something unexpected could happen one day and require savings, but they can learn the habit of saving early. If they build that habit when they are young, they will better understand how savings can help when they need it.  

So how do you explain this in terms they can understand?  

Begin by explaining why you work: to make money for the family. Help them understand that the items they use each day cost money, and that earning and saving help make sure those needs are paid for.  

Take them on family shopping trips  

This may sound like a nightmare if your children are known to throw temper tantrums over what kind of candy they want, but if that’s the case, it is all the more reason to bring them. Consider starting with a farmers market. Give your children a short list of fruits and vegetables and a set amount of money to spend. They can ask questions, compare prices, decide how much of each item they can buy, and start to understand the principles of money.  

Avoid the temptation to run to their rescue 

When they grow up, they won’t necessarily have someone to bail them out if they’re low on cash, and that’s something they have to learn the hard way.  

If your child is saving for a big purchase but does not have enough money yet, resist the urge to simply give it to them. Instead, have them work for it or wait until they have saved enough.  

You can also lend them the money and explain that they will need to pay back more than they borrowed. Learning the discipline of money management as a child with a small amount of money is far better than learning it for the first time as an adult with larger financial responsibilities.  

Lead by example  

Monkey see, monkey do. Chances are, if you practice good money habits, so will your offspring.  

Be a role model. Show your children how you use a savings account, shop wisely, and put off wants until you can afford them comfortably, one at a time. Delayed gratification is a grown-up characteristic that children can learn from the adults around them.  

And don’t just do it and hope your child notices. Point out your good financial habits whenever you can.  

You have a budget and spending priorities, and your child should learn to have them too. Show how you set up a budget and stick to it. If you have had money troubles in the past, explain in an age-appropriate way how it made you feel and what difficulties it caused. Talk about your work, how your salary is based on the work you do, and how your earnings can reflect the health of your business and the economy. If your family is going through a difficult time, find a way to talk about it in an age-appropriate manner.  

Offer an allowance—with some rules  

Don’t just hand out $20 a week for no reason. Make your children work for it. Depending on their age, you can set guidelines such as making their bed, getting to the bus on time, or finishing their vegetables during the week. If they meet the expectations, they earn the full amount you have allotted them; if they do not, they earn less. You can also tell them they may use their allowance for whatever they want, but once it is gone, they do not get any more. That helps teach financial responsibility and can reduce arguments when your child asks to buy something. You can simply ask how much of their allowance they have saved. Set whatever rules work for your family, as long as your child learns the value of a dollar.  

Teaching children to be financially responsible and money-smart can have a lifelong impact, so get started today. 

Check out our Financial Education Hub for more helpful tips.