Learning about money is an essential part of growing up, but many young adults wish their parents had taught them how to manage money before they left home.
According to a 2019 study conducted by Everfi, the majority of surveyed college students said that they felt the least prepared to face personal finance problems over any other college-related challenges. As of 2020, only 21 states require personal finance classes as part of their high school curriculum, so there’s a significant gap in financial education that parents are left to fill.
The sooner you introduce your kids to concepts like how to save money, get out of debt, and the basics of investing, the better off they’ll be handling their finances and starting adulthood on the right foot.
Show them where money comes from
Earning money can be a tricky concept to grasp, especially at a young age. Small kids play store or have pretend businesses, but the idea of a grown-up earning money from a job often escapes them.
It’s important to explain that money doesn’t magically appear in your wallet, and you can’t just get more whenever you want. For smaller children, taking them to the bank with you to deposit or withdraw money can provide powerful early lessons in money management (and a good chance to practice counting).
Use in-the-moment examples when they ask to buy a special treat to help illustrate the point. Explain trade-offs and that we use money to buy things that we want, but we also need to use it to purchase items that we need and save for the future.
Provide opportunities for them to earn money
Having an allowance (and probably a list of chores that go along with it) is a rite of passage for many kids. It also provides parents with an excellent opportunity to talk about different ways to earn money.
As you hand out that weekly payment to your kids, discuss how you use money from your paycheck, how much you save every month, and what your family gives to charity.
The US Mint has fun, money-focused games for elementary school kids to play and a list of ways kids can earn more money around the house and in their communities.
Teach them about the big three
Before they have that weekly allowance burning a hole in their pocket, take a little time to discuss three big financial topics with your children: Saving, Spending, and Giving.
Younger kids might need help with addition and subtraction to determine the correct dollar amount to put into each category. Older kids can put their math skills to work and calculate dollar amounts based on the overall percentages that they discuss with you.
Help younger kids decorate glass jars, or use piggy banks or colored envelopes to distinguish between their three categories, and consider using smaller containers for long-term items they want to save for, like a new video game or electronic device. Older kids might be ready to learn how to use a budgeting app or spreadsheet and customize their categories based on their interests.
Consider creating a family charity fund that each person contributes to, and determine where the proceeds go, as a family.
Don’t give in if kids spend all their money and need more
It’s easy to feel like the bad guy as your child has a tantrum because their money doesn’t cover what they want to buy. Cue the yelling, arguing, and negotiations, usually right in the middle of the store aisle.
As difficult as it may be, it’s a learning moment that won’t happen if you bail them out every time they ask for more and you give in. Stay strong and realize that while your child may not like you very much at that moment, you are providing a lesson that will help them in the future.
Show older kids how money can grow
Investing might seem too complicated for kids, but they pick up on more than adults think. While you may need to keep investing topics more general for younger kids, talking with older kids about compound interest and getting their money to work for them may ignite a spark for investing that will stick with them for life.
Consider opening a custodial investment account for your child, and help them periodically invest their savings, along with any contribution you plan to make.
Show them the difference between the interest earned with a bank savings account versus the potential rate of return by investing their money instead. Make sure you also discuss the risks of the stock market and the difference between a gamble and smart, long-term investing strategies.
Make their allowance count
According to the American Institute of Certified Public Accountants, kids get more allowance than ever before, an average of $30 a week, but save very little of what they receive. Make sure your child knows that planning and saving for the future is as important as the fun stuff they want now, and encourage them to create savings goals or consider a family savings challenge so everyone can participate.
You may also want to consider having them put part of their allowance toward school fees, class trips or athletics, or transportation costs. Help them understand that their activities are not free, and that part of becoming an adult is being aware of what things cost.
Model good financial behavior
Your kids are going to learn the most important lessons about money by watching you. Let them help you pay your monthly bills online, move money from your checking to your savings accounts, and show them your lists of financial goals and how you plan to achieve them.
Realize that even young children will pick up on how you feel about money. If money has been a sore spot for you, a child will pick up on that and potentially develop fears or avoidant money behavior, leading to problems down the road. Make sure you’re modeling good financial behavior and include your kids in money conversations at a level they can handle.
Be open about family finances with older kids
While it might be overwhelming for little ones, showing older kids how you create a budget for the month can help them piece together how numbers on paper translate into real life.
Let them help you stay accountable if you’re working to curb your impulse buys and put them in charge of the grocery list and calculator when you go grocery shopping to ensure you stay on budget. Let them know what the budget is, and trust me, if you go over by even a few cents, you’ll hear about it.
Help them resist impulse buys
Even as adults, resisting those impulse buys is hard, but as a kid, few things cause a meltdown quicker than seeing something they want but not getting it.
Help your child determine the difference between saving for a big purchase and buying on impulse. Point out how much something costs and do the math with them to break it down into a manageable savings goal.
Chances are good that when they see how long they’ll have to save for something, they’ll lose interest or forget about it once you’ve moved to the next aisle.
If applicable, teach them about discount sites, coupon codes, and second-hand stores. After all, being thrifty is a helpful habit at any age.
Give older kids cash for birthdays or big occasions
When birthdays or other significant occasions come around, consider giving your older children cash or a reloadable debit card specifically made for kids so they can buy that new electronic device or gaming console on their own. There’s a much better chance they’ll appreciate the value of whatever they decide to buy far more than if they were just given it.
Make sure to provide them with a money lesson about researching the best model available, doing the math on how much they need to afford their present, and how to choose wisely amongst all of the marketing displays.
Teaching your children about money doesn’t have to be painful. Find ways to introduce financial subjects into your everyday conversations, and if your child shows interest in a particular topic, help them explore it further.
Be sure to model good financial habits by teaching your kids how to avoid common money blunders. While financial mistakes do happen, accidentally ruining your finances as a teenager or young adult can lead to permanent issues with money. Do your child a favor and start talking about money early and often.