SerpApi.Org
Key takeaways
- To raise financially grounded kids, talk to them about money early and often.
- Give them space to make mistakes with money, and don’t bail them out when they do.
- As kids get older, include them in some family financial decisions and encourage them to earn their own money.
When your kids are little, it’s hard to imagine that one day they’ll be all grown up, managing their own finances. This moment comes faster than you think, which is why it’s important to start teaching good money habits when they’re young.
Start talking about money early on
“The earlier we can get kids involved in listening, discussing, having an opinion and learning about money, the better,” says Julie Beckham, AVP of financial education at Rockland Trust.
Beckham says you can start by talking to your toddler or preschool-age kid about the everyday money decisions you make. When her son was that age, she says she’d narrate her grocery store trips to him. If she decided not to buy a certain item because it wasn’t on sale that week, she’d explain that.
You can also use shopping trips to introduce children to some basic financial concepts. Point out which items are needs versus wants. Explain your thought process when you decide to buy a package of cookies instead of a pint of ice cream, and why you didn’t buy both. Share how the money you spend on groceries fits into your larger household budget.
Remember that kids are always listening
For better or worse, kids are always watching, listening and learning from their parents’ behaviors.
Jesica Ray, CFP and senior lead advisor at Brighton Jones, says that parents should be careful to not talk about money as though it’s frivolous. For example, the way a parent talks about a last-minute decision to go out to dinner could sound to a kid like spending money isn’t a big deal.
“Maybe you know that you have $500 a month for eating out, but what the kid hears is, ‘Oh, let's just go out today, I'm tired.’ So they think you can just make decisions ad hoc without worrying about running out [of money],” Ray says.
Share your thought process with them when making these kinds of decisions. Explain how dining out fits into your overall household budget and whether you’ll have to make any trade-offs to accommodate the change.
Share money lessons you’ve learned
You don’t have to be a perfect steward of your own finances to raise financially responsible kids. Ray recommends sharing your own money mishaps or experiences that you’ve learned from when talking to your kids about money. Explain what happened and what you wish you’d done differently.
“There's so much pressure to be a great [financial] role model, but money is about practice, it's not really about perfection,” Ray says.
Include them in the conversation
As your kids get a little older, consider involving them when you’re deciding how to spend money as a family, Beckham says.
For example, if you’re planning your summer vacation, have a family meeting where everyone can share their opinions on where they’d like to go. If you have a summer-specific budget, explain how your spending on entertainment and activities differs from the rest of the year and how you plan for it. This can help kids understand how financial decisions are made and give them confidence when they have to start making those decisions on their own.
Give kids opportunities to earn money
There are many ways for kids to earn their own money. Some parents compensate their kids for completed chores, while others only pay for tasks that go beyond their basic daily responsibilities, like mowing the lawn or washing the car. Tweens can offer to help neighbors with odd jobs or start a business shoveling snow or walking dogs. Teens can make money babysitting or, when they’re old enough, at a part-time job. Not only does this teach them the effort that goes into earning a dollar, but it also gives them experience managing their own finances.
Let them choose how to spend their money (and experience the consequences)
While parents can provide some guidance on how kids can spend or save their money, it’s important to give them a chance to make their own financial decisions—and live with the fallout if they make a bad one.
“Let them learn that once they spend it, it’s gone,” Beckham says.
Giving kids space to make financial mistakes when the stakes are low can help them avoid more serious mistakes when they’re older.
Introduce them to investing
If you want to ensure your savings keep up with inflation, you need to invest. By introducing your kids to investing early, you can show them how market fluctuations impact their investments and how their money can grow over time, Ray says.
You can start investing with your child by opening a brokerage account and letting them invest in a few companies they like. Use a compound interest calculator to show them how much money they could have in a few years if they keep their funds invested.
Some brokerages offer accounts specifically geared toward teens, such as Fidelity’s Youth accounts and Schwab’s Teen Investor accounts. These accounts offer a variety of securities for 13- to 17-year-olds to choose from, allowing them to get firsthand experience picking stocks or investing in a fund.
Other investment account options for kids include custodial brokerage accounts, Trump Accounts, 529 plans and custodial Roth IRAs (for minors who have earned income).
Help them build a values system around money
Brands are working harder than ever to get us to spend our money on various gizmos, gadgets, sundries and experiences. For kids who are earning their own money for the first time, it can be hard to resist the urge to buy, buy, buy. According to a recent survey from PartnerCentric, 41% of consumers report making nonessential purchases at least weekly. That’s where having strong financial values comes in.
When you have clearly defined values, it’s easier to decide how you want to spend your money and avoid frivolous purchases, Ray says. Keep an open dialogue with your child about how money is a tool that can help them achieve their goals and how their everyday spending decisions can get them closer to (or further from) those goals.
FAQ
At what age should kids start learning about money?
You can start talking to kids about money around age 3. At this stage, you’ll just be introducing them to the basics around earning, spending and saving money. You can enlist the help of children’s media that teaches financial literacy for kids, such as Sesame Workshop’s financial education resources. The Consumer Financial Protection Bureau also offers resources for parents on how to talk about money in age-appropriate ways.
How do I teach my child to save money?
Have conversations with your child about why saving is important and encourage them to save a portion of the money they get from allowance or chores. Consider opening a high-yield savings account for them so they can watch their funds grow and learn about compound interest.
Should children receive an allowance?
Paying an allowance can teach kids how to budget and use money as a tool to reach their goals. However, whether you give your child an allowance is a matter of personal preference and what works for your family. You might decide to tie the allowance to chores or offer payment for specific tasks. Whatever approach you use, it’s important to give kids an opportunity to have their own money and make decisions about how to spend it.
What are the most important money lessons for kids?
Your goal should be to help your child grow into a financially capable, independent adult. Part of that includes teaching them the basics, such as the importance of saving, but you also should give them space to make their own decisions with their money and learn from their mistakes when the stakes are still low. Additionally, be mindful about how you discuss money-related topics or respond to financial stresses when they’re around. You want their first experiences with money to be positive, low-pressure and shame-free.
