Teaching Kids About Money

When it comes to teaching kids about money, surveys indicate that most parents would rather not, so much so that they wait until their kids are 15 to start. The gap shows: America continually rates poorly on financial literacy indicators; 60% of Americans can’t cover a $400 emergency with their savings; and 61% of Americans don’t know how much money they need to retire. Surveys indicate that 80% of newly graduated teens rank financial pressures as either a “major or minor problem.” Stress about money is a huge problem in this country, one which parents presumably would like very much to help their children avoid. But how? 

The home is the first place where kids can and should be introduced to concepts like the value of money, saving, debt, credit, investing, budgeting, etc. And teaching your kids about money isn’t that hard—if you start young, communicate clearly, and stick with what is age-appropriate. Below are some recommendations, by age group. 

The Preschool Years

Research shows that kids can comprehend some basic financial principles by the age of seven. But even before, you can lay the groundwork by teaching things like restraint, the value of money (how many coins equal a dollar), and saving. When your four-year-old wants to eat out, don’t just say no. Explain that eating out costs money, and that’s one thing you need to consider. This doesn’t have to be a gloomy or embarrassing conversation. Instead of saying, “We can’t afford to eat out every day,” consider something more empowering, like, “That’s not how we’re choosing to use our money right now.”

Elementary School Age

If you haven’t already, you may consider adding an allowance, linked to the performance of specific chores. RoosterMoney is a fun and helpful tool, with age-appropriate guidelines, chore charts, and even early budgeting tools.

Also start teaching your kids the basics of budgeting and investing. Investing at a young age is one of the best ways to build wealth over time, but only 6% of children have an investment account.

Our friends at Bankrate have created this useful guide to help parents teach their kids about investing. It highlights lots of practical ways to start helping your child invest, including opening a custodial investment account for them using tools like Stash, Stockpile and Acorns.

Also at this age, have clear and regular discussions around your child’s savings goals. Consider having family financial “projects.” Save up for a new toy or activity together, or perhaps a bigger purchase like a playset, or even a vacation.

Middle School

This is where things can and should get a bit more complex. Increasingly, Americans handle money digitally. So now that your kids have learned about dollars and coins, you may want to consider introducing some digital tools. RoosterMoney, BusyKid, or other “allowance apps” may help. Kids can tap on a chore once completed, parents can approve, and the child can collect allowance on “pay day.”  

High School

The biggest thing you can do at this age is talk with your child about how he or she will become financially independent after high school.  As part of these conversations, you should help your child pinpoint his or her abilities. If college is the chosen path, have either of you saved anything? (The Bankrate guide above suggest Wealthfront for kids, which offers the ability to save for college using a 529 plan.) Explain the responsibilities of student loan debt. Start talking about what your child may want to pursue for a career, and how that career translates into earning potential.

The U.S. Bureau of Labor Statistics publishes the Occupational Outlook Handbook, where you can look up the median income for any number of job titles. You can even do some budget-forecasting with your teen. Find a possible income range based on desired job, budget that income with some basic percentages, and examine how a student loan with interest would fit into that budget. Help your child connect with friends or family with varying levels of education, different careers, and perhaps some experience in student loan debt. Introduce a variety of voices to help your child gain fresh perspective. 

The important thing to remember is that there is no single, one-size-fits-all approach to teaching your children about how to manage money. But it is crucial that you teach them. Be thoughtful and creative. Teaching them about budgeting, saving, investing, and skill sets from a young age lays the groundwork for financial freedom.