Though it can be hard to imagine, our kids' money patterns and habits are largely established by elementary school. Yes, by about second grade or age 7, when we're still packing their school lunches and watching cartoons with them, our children have formed many of the thought processes that will impact their financial capabilities later in life as adults.
A study from the University of Cambridge titled Habit Formation and Learning in Young Children, bears this out, explaining that many basic concepts relating broadly to later financial behaviors—things like budgeting, delayed gratification, and saving—will typically be in place.
The same University of Cambridge study goes on to explain that each child's development and learning is highly dependent upon the physical and social environment in which they live, noting that "children, being essentially social learners, acquire cultural practices effortlessly and gradually assimilate 'values, attitudes, standards, norms, knowledge, and behaviours that contribute to financial viability and well-being.' "
Translation: your kids observe your money behaviors, patterns, and attitudes, and learn through imitation from a very early age. Social context also shapes economic beliefs, attitudes, and values, leading to different levels of knowledge and financial behavior.
Though it shouldn't exactly be a news flash that as parents, we're essentially preparing the next generation to manage their money, it's still a daunting fact to consider that your child's money mindset is created at such a young age—and hard to shift once created.
10 Money Lessons to Teach Kids Before They Turn 10
It's a lot to digest as a parent. But the good news is that instilling solid, foundational money habits in young children can be relatively straightforward—and even fun, depending on how you approach it. Money experts break down what it all means for parents in practice on a daily basis, and how to raise financially savvy and competent adults.
Dinner Table Conversations About Money Matter for Kids
On the most fundamental level, children learn a great deal about personal finance and money management styles simply by listening to the conversations of the adults in their lives. Though they may not understand the finer points at 5, 6, or 7 years old, they certainly understand emotions associated with money discussions and how money makes the adults around them feel and act. And here's the key point: they may eventually learn to feel and behave the same way when it comes to money.
"Really, with young children, a lot of it is modeling or dialogue at the dinner table," money coach Carrie Casden, founder of Summit Financial Management, tells Parents. "Are [parents] always stressed or arguing about money? At age 7, that's when kids start to pick up on energy and dialogue."
Does that mean no more money arguments in front of the kids and no more discussions drenched in money-related stress? To some degree, yes, that's what it should mean.
"Parents talk about all sorts of stuff and don't think kids hear or understand," says Casden. "Your kids hear you. And they're a lot smarter than we give them credit for. If it's not the language that they understand, it's the energy."
Impart the Right Messages About Money With Your Kids
In addition to holding off on challenging personal finance talks until the kids aren't listening, Casden suggests being thoughtful about the discussions you do have with young kids surrounding money and the decisions you're making, ensuring that you're imparting the right types of messages.
"One of the big mistakes I see parents make is saying, 'You can't have those tennis shoes you want because we can't afford them,'" Casden explains. "But the message really should be, 'That's not how we're choosing to spend money. We want to put savings first.' Or 'we don't want to overconsume.' We want to teach our children to be mindful of the fact that money is not an infinite resource."
What's more, saying, "We don't make enough money" for something sends a very different message than "That's not how we choose to spend money" or "I don't think that's a good value." The first approach conveys a lack of control over your financial situation, while the second conveys the message that thoughtful money choices and decisions can lead to desired outcomes.
"While it's understandable that money can evoke anxiety for many, [the language you choose] makes it sound like your budget is in charge of you instead of vice versa, and you run the risk of your child learning to associate money with a feeling of stress," Brittney Castro, a certified financial planner, tells Parents.
Kelly Lannan
Even children as young as 3 to 6 years old can understand having a goal and making progress towards it, as long as they're visually able to see it happen.
— Kelly Lannan
Make Money a Visible Part of Daily Life for Kids
Because of all the technology, fintech apps, and even credit or debit cards that we rely on in our daily lives, many kids don't see actual money being used for purchases anymore. That can be problematic, leading to a lack of understanding of the value of a dollar or even a total disconnect from the fact that it's real money being used to pay for purchases, which can ultimately be disastrous if they become adults who do not have any meaningful concept of money.
To help counteract this, try actively discussing routine monetary transactions openly, while they are taking place, and using them as tiny, teachable moments.
"Get into the habit of explaining moments out loud, like what trade-offs you're making to purchase items or what the overall cost is," says Jennifer Seitz, a certified financial education instructor and director of education for Greenlight, a money management app for families which offers debit cards for kids. "Discussing how you're choosing the best price at the grocery store or saving up for a fun treat shows them there's an important thought process for money choices, even if they can't physically see the money you're spending."
Teaching Kids About Money: An Age-By-Age Guide
Buying items on sale is another valuable, teachable moment, says Casden. "When my daughter was little, we would always look on the sale rack and I would say to her 'Just so you know, this dress is now $30, but it used to be $100. So we can do a lot more with our money by buying this dress on sale.' Now my daughter is really good at buying things on sale herself."
For young children, you might even explain that they could have three toys for the price of one if they opt to buy things when they are on sale.
The key here is to make your money actions a regular part of everyday conversation, taking the emotion out of the conversation and focusing on how you use money and the thought process involved, Kari Lorz, a certified financial education instructor and founder at MoneyfortheMamas.com, tells Parents.
"While grocery shopping, you might say, 'Wow, chicken is a great price this week; we should buy some extra,'" says Lorz. "Or while planning for a spring vacation trip, say, 'We should start saving money for this trip now, as it's expensive.'"
These conversations should be light-hearted, nothing serious, Lorz adds. Make them normal talking points, just as you would talk about what you're having for dinner.
Let Kids Know That You're Saving Money
Getting kids hooked on saving money at an early age is also an important task for parents, one that's critical to raising financially savvy and successful adults. There are various ways to approach this lesson and none of them need to be overly complicated.
"The key to teaching young kids the importance of savings, and how to save, is making it visual and concrete," says Kelly Lannan, senior vice president of emerging customers for Fidelity Investments. "Even children as young as 3 to 6 years old can understand having a goal and making progress towards it, as long as they're visually able to see it happen."
To that end, you might begin by giving a child a small, regular allowance to help teach them how to manage their own money. Rather than just giving them money and walking away, have a conversation around it and ask them what they'd ultimately like to do with the money.
Consider having them store their cash in a piggybank to watch their savings accumulate and let them use it to buy something small. These steps help instill principles in children at a young age that help build a strong foundation for good savings habits later on, says Lannan.
Encourage Kids to Practice Budgeting
In addition to teaching kids about saving, the act of providing an allowance can also be an opportunity to teach kids about creating a budget and managing their spending in a way that's far more impactful than simply telling your kids about budgeting.
4 Fun Activities to Teach Kids About Money
"Learning how to create a budget helps kids identify the difference between needs and wants and can help them avoid making regrettable impulse purchases with their allowance," explains Castro. "You can help them divide up their allowance into needs, wants, savings, and charity, with dedicated jars or piggy banks for each. That way, they learn how to start dividing their money based on what matters most to them right now. Teaching kids how to create a budget also helps them learn other important life skills, like how to budget finite resources."
The Bottom Line
Because kids learn so much about life by modeling their parents' behavior, it's crucial to show them healthy money habits at a very young age and to normalize money discussions, while also breaking down the lessons into small, digestible, real-life moments. But more importantly, if you don't make the effort, they're likely to get little positive guidance elsewhere.
