Very few of us love talking about finances, so talking to your kids about money probably isn’t at the top of your to-do list. However, educating your children about financial basics and how to be smart about money is one of the most important things you can do for your children.
Don’t worry: you don’t need a finance degree to teach kids about money. Just focus on financial basics and apply some of the following general lessons based on the age of your kids.
Most of what kids learn about money at this age will come from watching you. You can also increase their understanding with some simple games. Consider these tips to give kids positive examples and allow them to imitate your behavior.
Start Slow When They're Toddlers
Show them examples of money.
Introduce kids to both paper money and coins and help them learn to identify each by name.
Play pretend.
Encourage games of pretend that involve handling money. Help your kids set up a play store or restaurant where you are the customer. Kids can draw and color their own money to use in their pretend store.
Let kids spend their own money.
Give your child a small amount of money to spend in a store. Help him or her find items within that budget and then have them pay for their purchases while you count out the money.
Cover The Basics With Your Kids in Elementary School
Financial education for school-age children can move beyond awareness. Focus on teaching skills that will give kids control over their resources and help them apply these lessons in daily life.
Give children an allowance so they can learn to manage money.
An allowance system doesn’t have to be complicated. A common method is to provide children an allowance in exchange for chores; however, more experts these day recommend that you don’t tie an allowance to chores (to avoid the idea that they should be paid for daily tasks you expect them to do as being part of the household) and instead give a certain amount of money based on your child’s age (e.g., $1 per year, so your 8-year-old gets $8, 5-year-old gets $5).
Use an allowance to teach kids about budgeting.
Help your children understand financial responsibilities by having them divide their allowance or any money they earn into categories such as saving, spending and giving. Some more advanced budgeting methods for kids even have categories for investing or incorporate “deductions” for “family taxes.” Decide what percentage of each child’s allowance should go toward each category and make sure they stick with it.
Let kids decide how to spend their money.
What kids put in the “spending” bucket is just that – money for them to spend. You might question their choices but it can be more powerful for them to make mistakes and come to their own conclusions. For example, maybe your daughter realizes that spending a month’s worth of her allowance on candy that is gone in two days isn’t worth it. She will probably think twice before doing that again. When your kids make decisions that seem unwise, talk to them about it and the impact it had on their finances.
Help kids open their own savings accounts.
The money from their allowance that goes in the “savings” category should go into a savings account you help them open. The process of finding the right account can also be a teaching experience, as you can talk to them about looking for accounts that have no maintenance fees, no minimum balances and have a good interest rate.
Teach Teens to Manage Money
As your kids grow closer to being on their own, it’s important to teach them about the financial world of being an adult, along with practical tools they can use.
Encourage your teens to get a job.
Not only does a job teach responsibility and important social skills, but it can be a teen’s first experience with earning a salary. Walk your teen through his or her first paycheck so that they see how taxes and other payroll deductions work. Then, when tax season rolls around, help your teen complete and file a tax return.
Teach them to manage their bank accounts.
When your kids become teens, you will want to help them open a checking account in addition to the savings account they already have. Most banks have checking accounts available for kids as young as 13, as long as a parent or guardian is co-owner on the account. Do research together about different account options and what sorts of fees (monthly maintenance fees, overdraft fees) or perks (free online and mobile banking, free direct deposit) are available.
Once the account is set up, walk them through the basics of writing checks and using debit cards. Explain the difference between a debit card and a credit card. Although not many people mark their transactions in a printed register anymore, you should talk to your teen about the importance of keeping track of their transactions in some way so that they don’t spend more than they have. Encourage them to track their purchases either in a register, using a free online option such as ClearCheckbook.com or downloading a free app like Balance or Spend Lite. At first, sit down with them to review their statements and talk through how they are spending money.
Help them build credit responsibly.
Building a good credit score takes time, so when you feel like your teen is ready, get them a credit card with a small credit limit. Talk to them about how to use the card: you might want to set the expectation that they only use it for emergencies. Or, you can have them use it but explain that they will be expected to pay off the balance every month. Be sure that they understand how interest rates work and what will happen if they don’t pay off the balance – including the impact to their credit score and long-term financial goals.
