Financial literacy is not routinely taught in classrooms, which leaves many parents on the hook for teaching kids about money. That can mean discussing the basic tenets of money, teaching about budgeting and saving, and accessing age-appropriate financial education material. But more importantly, you also teach your kids about finance through your own words and actions.
Talking to your kids about money may seem daunting, but you can prepare ahead of time. With this in mind, here are some tips that may help.
Help kids associate money and rewards with earnings and savings—an important relationship they can grasp early on.
Discuss the value of money
Depending on the age of your child, you can explore the value of money with a simple conversation. For example, you can start with questions like:
• If you wanted to buy a new toy, what’s the first step?
• How much money will you need?
• How will you get money?
• And, once you have money, where will you save it?
• How do you make sure you have enough?
Allow your kids to earn their own money
Giving kids income-earning opportunities is another good starting point. It can help them understand the value of purposeful work in exchange for financial rewards, while also developing useful skills and interests.
For example, for young children, the traditional lemonade or baked goods stand for the neighborhood may be a good start. You might even explain the concept of profit by going over how much it costs to run the stand and start exploring the topic of saving money by keeping a portion of their earnings and adding a few dollars (to represent interest gained) for them to spend in the future. Or you can help them sell outgrown toys, games and clothing to teach them the value of each item and the profit that comes with the sale. The intent is to find something that your children find appealing and engaging.
Demonstrate healthy spending habits
Some finance-related concepts will have to wait until kids are older, but you can introduce new topics in everyday conversations. For example, you can begin by setting expectations before entering a store. Bring a list and let them know how it’s important to stick to it. Verbalizing this intention can help keep both you and your kids in line and start the conversation about spending discipline. If your child asks for something unnecessary, you can teach them the benefit of waiting a while to save more money. This can help them associate money and rewards with earnings and savings—a critical relationship that kids can grasp early on. Let your kids see you make choices as minor as packing lunches instead of buying them for family outings, and communicate how the difference in cost can be put to good use.
Keep it simple
When you’re ready to start money conversations with your children, be prepared with simple explanations and real-life examples. For example, with young children, a trip to the grocery store can be a lesson as they watch you consider one product over the price of another brand. This can help them understand why you checked the price tag and returned one of the products to the shelf. If you find an item on sale, tell them that you now still have money for something extra.
For older children, tell them you have a certain amount of money to spend on food, load up your cart, and ask them to write down what the items cost. Stop shopping once you've used up your budget. As they get older, you can go into more details or involve them in other areas of your household budget. If you’re feeling stuck, there are free and paid educational resources on personal finance that can help you, including age-appropriate interactive classes, downloadable materials, and apps with content that inspires kids to learn while keeping them engaged.
Consider opening a savings account for your kids
Saving for the future is a good lesson for your kids, but involving them in the process can be even better. Some banks offer kid-specific savings accounts that children and parents can jointly operate. Another option might be a custodial account for your kids, which sets savings aside until they turn 18. They won't have the same access to their money as a traditional bank account, but they can see the benefits of saving as their account grows over time.
Ultimately, the best resource for teaching your kids about money is you. By engaging them in positive experiences and with a can-do attitude, they’ll understand the importance of savings and take the lessons with them into adulthood.