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You can teach your kids about finance through both your words and your actions—sometimes when you don't even realize you're doing it. Talking finance to a toddler may seem daunting, but a Cambridge University study found that 3-year-olds are already capable of understanding money concepts, and that the financial lessons they've learned by age 7 will carry over into the rest of their lives.
The approach for these conversations will vary depending on a child's age. The littlest ones obviously won't be able to grasp the stock market or the nuances of a credit report right away, but you can start simply by explaining the concept of money and having conversations about how to use it. For older kids, think tweens and high-schoolers, more in-depth lessons from a parent about managing money can help them have confidence (rather than fear) as they prepare for their financial future.
Teach Your Kids the Basics of Budgeting
A budget is a financial plan based on your income and expenses. Learning to budget is one of the most basic and essential steps in financial education because it teaches you how to set goals, live within your means and manage your money responsibly.
The simple act of pushing your toddler in a supermarket shopping cart can be a start to their budget education, as they watch you consider one loaf of bread over another based on value and other factors. Backing up those experiences with conversations will help them understand why you checked the price tag and returned one loaf to the shelf.
For preschoolers and kindergartners, tell them you have a certain amount of money to spend on things like food. Load up your cart while making note of what the items cost, and stop shopping once you've used up your budget. Talk through your process in simple terms and convey a can-do attitude. For example, when you find a necessary item on sale, tell them that you now have more for something else on your list (or for an extra treat). These talks should be fun, not frightening.
When your kids reach elementary and middle school ages, you can get more detailed. Once they seem mature enough, you can start to share aspects of your household budget, including housing, car payments, clothes and entertainment. Explain the finite nature of a paycheck and how to prioritize your spending and save what's left over.
You can be more candid with teenagers—to a point. Focus on challenges and solutions, but avoid instilling fear about your family's finances. If bills are making you anxious, tell them why and what positive actions you're taking to alleviate the stress, such as adjusting your budget. Another benefit: If your teenager is familiar with the household budget, they'll better understand why you said "no" to their latest spending request.
Demonstrate Healthy Spending Habits
Kids of all ages will pick up on your attitude and habits with money naturally. Some tough concepts may have to wait or will require more detailed explanation, but you can steadily introduce new topics over time by using real-world examples. You can help teach your children healthy spending habits with purposeful exercises as well:
- Arrange a scavenger hunt. While at the store, ask your kids to find a specific item at the lowest price and read the numbers aloud to familiarize them with prices. Try this online too—a search for the best price for an item online can teach comparison shopping.
- Set expectations. Before entering a store, clearly state that you will stick to your list. Verbalizing this intention can keep both you and your kids in line—and help you avoid fights as you pass the toy aisle.
- Demonstrate being frugal. Let your kids see you make choices as minor as packing a picnic lunch instead of dining at theme park restaurants or as major as opting for a budget ride over the luxury model. Communicate how the difference in cost can be put to good use.
- Turn impulse spending into lessons. When your child asks for something unnecessary, don't just shrug it off. Instead, you might ask if they want the item as a future gift or want to set aside some of their allowance for the purchase, or earn extra cash for it. This can help them associate money with earnings and savings—a critical relationship that kids can grasp early on.
- Let them practice with plastic. Bank and prepaid debit cards are great tools for kids between ages 10 and 16. They can make withdrawals and purchases without the danger of debt, and learn how to spend within a limit.
Allow Your Kids to Earn Their Own Money
Giving kids income-earning opportunities can get them to focus on purposeful work and grow their unique personal interests. The possibilities are virtually endless:
- Host a lemonade or baked goods stand for the neighborhood. You might even explain the concept of profit by going over how much it costs to run the stand. Bonus: Encourage them to donate what they earn to a local charity.
- Sell gently used toys. Selling no longer used toys, games and clothing in supervised garage sales or online can teach them about value, and how to reduce waste.
- Create and sell artwork, such as holiday cards. With your permission and help, they can even sell their crafty creations online to turn their hobbies and interests into real-life earnings.
High School Students
- Take care of younger kids. Your child can babysit for local families or become a tutor, either in-person or online.
- Start a business. Whether it's helping out at parties, providing pet care services or washing cars, adolescents can learn the ins and outs of building their own business. They can also create products or scour thrift shops and make a profit online, or start up their own digital shops through websites like Etsy or Poshmark.
- Obtain a part-time or summer job. A relatively straightforward but effective way for your child to learn the balance of time and money is through their first real job.
Some families also choose to give kids a regular allowance. Instead of giving kids money when they need it, spacing out their allowance can instill an early sense of how to manage money over longer stretches of time. If they come to you for more cash, let them negotiate—perhaps taking on a few more responsibilities around the house can earn them an increase for their contributions.
Whatever your children do, carefully monitor their activities and be available for advice about setting fair prices, collecting payments and managing proceeds. You can even use an app like Goalsetter to help both you and your kids manage their burgeoning finances.
Teach Your Kids About Debt and Credit
Your children need to be aware that each time you use your credit card, you're borrowing money. It's important for kids to understand that a credit card isn't something that provides infinite access to cash, and that you'll have to pay back any purchase you make (possibly plus interest).
Highlight the importance of making good on your agreements with your lenders by using credit responsibly (for example, making on-time payments and keeping balance low). You can go over the ways you've used debt to do things like buy a car or purchase your home. You might even explain what a credit report is, and why credit scores are important. Teenagers especially should be aware that a positive credit report will help them rent an apartment when the time comes.
Credit cards are probably the type of credit you interact with most frequently, and they can be a great starting point. You may be inclined to instill an early fear of credit card debt, but don't shy away from explaining how to properly use credit, and the positives that can come with it. Go over the steps you take to maintain a low balance and responsible payment history (the two most important components of a credit score).
Minors can't open their own cards until they're at least 18 (they may have to wait if they're unable to be approved), but you can look into kid- and teen-friendly cards in the meantime. By making them authorized users on your accounts, they can charge (as long as you agree) but won't be liable for payments. This can come in handy in cases of emergencies. Arrange a lower credit line for them so it's safer for you while helping them begin their credit history.
Open a Savings Account for Your Kids
Saving for the future is an important part of any budget. Banks sometimes offer kid-specific savings options for caregivers to open in their name, allowing you and your child to jointly operate the account.
Alternatively, you can consider a custodial account. Kids won't have the same access to their money, since this type of account sets savings aside until they turn 18, but it can be a useful option for kids learning the importance of maintaining funds for the future.
Make Sure Your Kids Understand Digital Payments
The shift from cash to credit has already made spending more abstract. Further complicating things is the fact that funds today are commonly exchanged online with the tap of a button in an app. This makes it harder for kids to grasp that money is finite. Whereas older generations grew up balancing a checkbook and counting currency in a piggy bank, your kids may only ever know to check their bank balance online.
Approach the world of digital money with a few exercises to get your kids to associate virtual transactions with physical ones:
- Make your family budget a team effort. Particularly when it comes to digital payments, your kids may respond better to the visuals of your budget if you take the time to map out where your spending goes and why. Even if kids can't fully understand yet, include them on your bill-paying each month so they can witness you paying for what they saw you buy earlier.
- Use an app like BusyKid or Greenlight to combine their digital and physical finances. With these, you can direct-deposit their allowances or chores earnings. They can even send some of their hard-earned dollars to their charity of choice, and get a physical card for spending.
Lessons for a Lifetime
The majority of parents or guardians say they encounter at least a couple chances a day to talk about money with their kids, but many avoid those opportunities entirely, according to a study by T. Rowe Price. Taking the time and effort to teach your kids about finances will give them more guidance and help them be more prepared as they go out into the world on their own.
You can (gently) let your kids in on the family finances and approach money as a dialogue about decision-making, so it becomes a topic of curiosity and not taboo. However you choose to impart your financial knowledge, don't forget the most important lesson of all: that money isn't everything.