Teaching Kids to be Smart With Money

When you first start teaching kids about money, it doesn’t have to feel like a lecture. It can be experiential, fun, and as engaging as you make it. Your goal is to help them develop the kind of healthy spending habits that will turn them into grown-up savers and investors you’ll be proud of.

Toys Can Lead The Way

Using the idea of buying a toy is a great way to teach children about money, says Noah Damsky, Principal at Marina Wealth Advisors. When you are in a store together and they ask for a certain toy, you can tell your child they need to save in order to purchase the item, and that hard work is necessary in order to save for the toy. Then give them a job or chore they can do to earn some money — and pay them.

Honesty is key. That’s why your children should understand early on that it’s okay (and often necessary) to have to wait and save up to buy something they want. You can illustrate this by letting them know how you as a parent or grandparent (or aunt or uncle) have to save to buy things you want, too. “I would teach these things in everyday life rather than in a formal setting,” Damsky says. “These values can be shared while shopping for groceries, or even when buying things online.”

Save & Budget

By the time they are in elementary school and are learning more about how much things cost and the concepts of working and saving, you can help your kids open a savings account at your credit union. And by middle school, says Jeannine Glista, executive producer at Biz Kid$, children should be able to set and achieve financial goals like saving for something specific.

“Once kids see their accounts growing, it becomes a self-fulfilling prophecy — they feel confident about their ability to accumulate money so they become motivated to get more,” she says. “This translates to having more self-esteem in their own ability to grow their savings.”

It’s also important to teach them the “pay yourself first” rule of personal finance so they know what it takes to gain security and to be self-reliant. When your child gets an allowance, earns a first paycheck or finds $10 in a coat pocket, their first order of business should be to stash away a portion in savings. (But it’s up to you, mom and dad, to make that happen!) While older children can save money in their credit union account, younger children could place the money in a piggy bank as a visual reminder for saving part of the cash and coins they receive.

And as your children mature, make sure they learn about the life-saving properties of having an emergency fund to fall back on. You can do this by sharing a situation where having a cash cushion saved you from disaster. A youngster’s “emergency” can be, for example, not having enough money to pitch in for a friend’s birthday gift. For more expert tips to help your tweens and teens navigate their finances like a pro, check out the illustrated book “How to Money: Your Ultimate Visual Guide to the Basics of Finance,” which dives into spending, saving, investing, and how to grow into a money-savvy adult.

Model Good Behavior 

Teaching children about the importance of saving at an early age allows them to develop good saving habits and grow into financially healthy adults. You want them to have a positive relationship with money. Part of that is how you explain it to them and also what they see you do. Practicing good financial habits, having an open dialogue with your children about money, and identifying “teachable moments” are all vital to cultivating a strong financial education for your children.

As they get older, also talk to them about your investments into funds like 401(k)s and other retirement savings plans. This is an excellent way to show your kiddos the magic of compound interest, or how a small amount of savings can balloon into a giant sum of money as it gathers layers upon layers of interest over the years. The magic is really due to time (which they have plenty of) and patience (which can absolutely be learned).

Give Real Life Examples

As we strive to talk more openly about money at every level with our children, it’s crucial to explain the “why” behind family money decisions when appropriate. You may doubt your own financial acumen, but don’t make your own uncertainties the reason that money is a taboo topic in your household. We learn by example and learn even more when others share the mistakes they’ve made. (If you’re in need of a little guidance on how to best set up your own budget, check out the Finance Fixx small group coaching program for some hands-on work with a personal money coach.)

Why it’s Worth it

Ultimately, teaching your kids about money management extends well beyond just turning them into grown-ups who know how to save and invest their paychecks. It can help build your child’s confidence in a major way, Glista says.

“Saving money is crucial to a kid’s confidence because it’s a skill they can master at an early age,” she explains. “They don’t have to fear it. And when they master it as a child, it’s ‘rinse and repeat’ as they grow older.”