Personal Advice

You are here

Raising Financially Literate Children

As a parent, you have probably had a child plead with you to buy something for them when you are in a store. Moreover, when told "no," those pleas might have turned to a series of whines and complaints. Of course, this behavior is frustrating, to say the least, but have you stopped to consider that you play a prominent role in how your kids value money?

Kids, especially at a young age, don't understand where the money comes from and how it works. Fortunately, there are things you can do to teach them a new perspective on the value of the dollar.

Financial Concepts to Know by Age Group

There are different lessons you can teach your kids depending on their age.

Ages 2 and 3

Although younger kids will not quite understand money and its value, you can still use your spare change to teach them how to identify each coin. Have your child trace around each coin and color in the shapes. Then, have your child match the images to each coin while you discuss the names of each one and their worth. Be sure to carefully supervise them since children this age may try to put the coins in their mouth and swallow them.

Ages 4 to 6

When you are out shopping, turn it into an opportunity to educate your kids about money, and its value since children at this age are typically old enough to understand the difference between needing something versus wanting something. When heading out for a day of shopping, give your children a "treat budget."

This money is not for them to go out and blow all of it on toys or other treats. It is for you to teach them how to spread their money out throughout the day or save it and use another day. Be sure to explain the "treat budget" rules to your kids before you head out. Also, stick with the plan and don't allow them to blow it all at once or give them more money if they go over their budget.

Ages 6 to 8

Once you begin giving your children an allowance, it is an excellent time to teach them about a saving their money. Open a savings account and encourage them to start making regular deposits. Teach them how compounding interest works and how it will help their balance grow.

Ages 7 to 9

Some parents cannot decide if they should just give their children an allowance or have them earn it. Cleaning their rooms, taking out the trash, and other chores should be a task your kids do by nature as part of the household team.

You should provide allowance as a way of teaching financial responsibility. Teach your kids values relating to the amount that goes to savings, spending, and even charity. You should give your kids the opportunity to appreciate watching their bank account grow for something they are looking to buy down the road and how it feels when they use their money to help others.

Ages 10 to 12

At this age, your children are starting to develop their skills of thinking hypothetically rather than just concretely. However, don't expect your kids to make correct decisions about credit or debit cards because the money coming out of their bank account does not seem as concrete to them as when they have cash in their hands.

Moreover, since they still have highly impulsive brains at this age, it will take a little time to learn. To help your children make smart choices, work with them to take things slow and monitor their bank accounts.

Ages 13 to 15

So, now your children are in their early teen years. What a great time to teach them a little about the stock market. Have them pretend they are investing in a company they are familiar with, like Mattel or Disney. Each of you can choose a stock. Then watch the financial news or read the newspaper together and talk with them about the fluctuation of each stock value.

Ages 16 and Up

Some simple tools you can offer your kids to teach them financial responsibility are stored-value cards like American Express Cobalt Card or Visa Buxx, which looks like credit cards. Teens can use pre-loaded devices like these to pay for items they want without using credit cards or cash. You can load up the cards with a certain amount of money and allow them to budget their allowance.

Teaching Tips

  1. Work together to create a family financial mission statement. Each member of the family can share some input on what they think is important. Do they think taking vacations and eating out is important or do they value saving for college more important? Perhaps they think that all of these goals are important.

    Openly talk with your children and spouse to encourage them to contemplate the meaning of money, the effort it takes in earning it and the necessity of saving for the goals they truly value.

  2. Provide opportunities for your children to earn money. Offering an age-appropriate allowance is a common way for parents to help their kids earn their own money. While some people debate whether giving their kids an allowance for doing chores is a good idea or to just give them a small salary without conditions, either way, offering your kids an allowance provides the perfect opportunity to teach them the responsibility to budget their own money.
  3. Give your kids the chance to experience spending and to save their own money. Help them open their savings account while they are still young. You can even let them manage the records. That gives them the chance to monitor their bank account savings activity as they grow up.

Once they reach their teens, they will realize the benefit of regularly saving their money over time, since now they can use their savings to spend on food, friends, and clothing — or even continue saving for college or their first car. Moreover, once they are ready to head off to their chosen college, they will have learned the savvy sensibility of saving money and managing their expenses.

Setting a Good Example

Although parents want the best for their kids, they can often get in the way of financial know-how. Remember, your kids are always watching you. They will notice if you are continually handing over your credit card to eat out or when you come home with an arm full of shopping bags full of new clothes or shoes. They will also notice you arguing with your spouse at the end of the month about money. Set good examples for them by being wise about your finances as well, and they will be more likely to follow these standards when they are all grown up and on their own.

You are your children's number one influence on their financial behaviors. Therefore, it is up to you to teach the principles of fiscal responsibility, so you raise a mindful saver, investor, consumer, and giver.