Tips for Teaching Kids About Money

Wondering how to get your kids started with good money habits? We’ve got some tips on building financial wellness from the ground up!

Children start learning about money from the time they are young. According to some studies, by the age of seven most kids can understand the value of money, basic concepts like delayed gratification, and the idea that some decisions may create consequences down the line. So how can you make sure your kids have a healthy start to how they view money? For starters, don’t shy away from having conversations about it. While you don’t need to have your first grader sit down with you as you do bills each month, don’t avoid talking about money around them either. By this age, most kids can plan, delay decisions, and understand that some choices around spending are permanent. Help them see this in action by setting them up with an allowance, working with them to understand savings goals, and showing them how to balance out needs and wants.

Introduce the value of money

The first thing that you want to instill in your kids is the value of money. Even small amounts of money can give them some freedom, but money also brings a sense of responsibility. Let them choose how they spend their money and help them understand that buying one thing means they won’t have the cash for something else.

Show them stuff costs money

If you’re heading to a store that might have something small they want to buy, it’s a good time to have them ‘withdraw’ from their piggy bank before the trip. While shopping, help them understand that not everything is in their budget, and they need to choose how they want to spend. So instead of ‘yes, I’ll get that for you/give you the extra $’, or even ‘nope, we can’t afford it’, try ‘well, you don’t have enough for this Lego set, but you could either get this smaller version, or not get anything today, and save your dollars until you can afford what you want.’ You can also show them that different things can cost different amounts, depending on where and when they shop. So, if they want that Lego set, help them look at the prices at different stores or online shops. This can also be a good way to talk to them about what it means when something is on sale; both the benefits of waiting for something to be discounted, and the pitfalls of ideas like ‘now I can buy more because I saved money with this sale item.’

Help them understand where money comes from

When they have money of their own, it’s likely been given to them for holidays or their birthday. Ask your child where money comes from and you may get answers like ‘from your pocket’, ‘an ATM’ or ‘from a card in your wallet’. In other words, the answer will likely be disconnected from the effort it took to earn the money in the first place. Growing up, you probably heard that money doesn’t grow on trees – maybe you’ve even said that to your own kids. But have you actually talked to them about where money DOES come from – or better yet, shown them how they can earn money of their own? Explain that when people have jobs and do their work, they get paid; and when they don’t do their work, they don’t get paid. Allowance-based chores are a great way to help them learn this. Whether it’s a flat allowance they get each week for set tasks or a ‘per chore’ allowance that lets them earn more for doing more, this can help your child understand the benefits of taking responsibility and the satisfaction that comes from buying something with their own hard-earned dollars.

Help them understand needs versus wants

While most kids understand that choosing one thing means not getting something else, they are only starting to develop an understanding of the difference between ‘luxuries’ and ‘necessities’. One simple way to help build that understanding is by bringing them grocery shopping, and making sure they know what is on the ‘needs’ list and what is on the ‘wants’ list. This is also a great way to get them started on the idea of a budget. Let them know how much you have to spend on groceries and give them a calculator or phone app so they can help you add it up as you go. Get your ‘needs’ first, so they can see how much is actually left for the ‘wants’, then have them help you decide on which of those to get, and which ones to skip. It may make grocery shopping take a little extra time, but you’ll be teaching valuable lessons while giving your kid a sense of ownership in the family budget. It’s also a great way to introduce ‘comparison shopping’ by looking at the difference in price between different brands.

Emphasize the power of saving

Showing kids the power of saving up their own money will not only encourage good habits from the start, but it will teach them that some things are worth waiting for and working towards. You can encourage them to keep putting money aside by offering a ‘match’ or a ‘bonus’ when they’ve saved a certain amount of money; this can be a great way of introducing them to earning account interest without getting too far into the weeds on things like percentages or account qualifications. If your kids are a bit older and want an ‘out of sight out of mind’ approach, instead of having them just give you the money to keep for them, open something like a Save Up certificate. This will help introduce them to banking, with a product that rewards delayed gratification and allows them to add money as they earn it.

In addition to saving and spending, help them understand the power of giving

As your kid starts learning the basics of earning money and setting it aside, it’s a good time to teach them about charitable giving as well. One popular way to do this is to use the envelope system. Have them split their money between three piggybanks (envelopes or savings accounts work too). One piggy is for spending: that’s the one they can dip into whenever they want to buy something. One piggy is for saving: have your kid identify a specific savings goal (a large toy, money for an outing or event). Try to involve them by letting them decide what they WANT to save for, instead of telling them what to save for. Once they’ve reached their goal, they get to move that money into the ‘Spend’ piggy and use it for what they saved for and set a new savings goal. The third piggy is for giving. Encourage them to always put a certain amount of their money in that piggy. Like the savings goals, it can help to have your child decide where the giving pig goes. Is it an organization where you volunteer or regularly attend events? A charitable cause they feel strongly about? Involve them in deciding both where they give and how much. When it’s time to donate, make sure they are the ones directly making the donation, so they can feel proud of their choice to give to others.

And finally, help them recognize that there’s no such thing as free money

The reality is that we live in an online world, and scams and fraud are everywhere, including the platforms your kids are using. Make sure they know how to spot things that sound too good to be true or how to tell when someone is trying to take advantage of them. Open communication, trust, and frequent conversations are the best way to help your kid build their ‘scam spidey senses’. Above all, make sure they are keeping you in the loop on what they’re spending money on and where.

Teaching your kids how to be money smart will pay dividends as they grow into financially capable young adults. If you’re ready to set up a savings account or a Save Up Certificate for your child, reach out to us today and we’ll get you both headed down the path to financial wellness! You can also stop by one of our branches to grab a fun piggybank for your kids to get started on their journey!

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