It’s never too early to talk to kids about money so that when they reach adulthood, they can save and spend wisely. Teaching financial literacy to kids at a young age can help cultivate respect for money and give them more opportunities for advancement when they’re older. Here are nine tips for getting the conversation started.
Focus on values
Talking to kids about money should include your family’s views on the best ways to use money. Explain to them that saving is important because it helped you pay for your college education, buy your home or take a trip on your bucket list. Discussing spending only what you earn to avoid debt and enjoy your money is always helpful.
If you save a portion of your money to make charitable contributions, tell your kids why those causes are important to you and why giving is meaningful. Even if they aren’t ready for facts and figures, this will be their first impression of spending money and understanding your decisions and their impacts.
Since teaching financial literacy to kids includes your family’s views on the best ways to spend, we recommend discussing money as a family affair. Include your kids in family meetings about budgeting and spending. While parents are the decision-makers, children can join the celebration when you have paid off a significant debt or saved enough for a long-term goal. It’s always helpful to explain how you’ve reached the goal, whether cutting back on eating out or reducing online shopping and why it was worth doing, like no longer having car payments.
Expand on the basics of math
Talking to your kids about money should begin once they start school and learn math basics. This allows you to educate them about how basic math relates to money and provide them with practice. Play money games at home, or download them on your mobile device. You can start as simple as teaching them different coins and then progress to counting them together and making change.
Another popular teaching tool is providing your kid with a toy cash register and playing store shopper and cashier. This will also help them learn the value of money by learning how to spend and use cash when the time comes.
Provide a piggy bank
Getting your kids a piggy bank will teach them the importance of saving and instill a sense of responsibility toward handling money. Encourage your kids to collect a certain amount in a particular timeframe or suggest they save specific coins. This is also a simple way to help children learn the denomination of coins and how quickly they can add up when saved together over time.
We recommended turning saving into a game to keep it fun and exciting. For example, open the piggy bank on a chosen date and count the savings. You could even create a visual record, such as a chart, to encourage your kids to save more. This will also teach them the importance of record keeping, and they can watch it grow.
Familiarize your kids with the bank
Talking to your kids about money may be more effective if it’s followed by action. Take your kids to the bank and open custodial savings accounts in their names. Let them talk to the teller and conduct their business independently with your support. Ensure they understand the terms and conditions and suggest they commit to depositing regular amounts weekly or monthly. For more convenient banking, nearly all accounts are now accessible online.
Having a bank account of their own will give your kid a feeling of achievement, which could motivate them to save more. In the future, you could choose to match their savings to incentivize saving over periods.
Help your kids plan how to spend their savings
Planning for future spending can motivate your kids to achieve their savings goals. It reminds them that they can buy whatever they want with their money. Allow them to dream big, and encourage them to save more to achieve their goals quicker. Teaching financial literacy to kids can be more effective when their dreams and goals fuel it.
Use visual aids
We touched on using visual aids for games earlier, but there are other ways to utilize them. For example, consider showing your kids one of your monthly bills, like your electricity bill, and where the costs came from. Allow them to help you brainstorm ways to lower the bills, such as turning off the lights when leaving a room. Review the statement next month to see how your family’s choices have helped cut expenses.
This will allow them to see the impact that daily decisions have on bills and finances. You could also turn it into a game to see how much you can save as a team. Incentivize it with a reward that the savings will fund from cutting the bill.
Allow your kids to shop for themselves
Give your kids an allowance when you go shopping. This will help you observe their attitudes toward spending money – allow them to spend some of it and make their own choices. If your kids want to spend more than their allowance, encourage them only to spend what they have and advise them to be more frugal and patient.
We recommend not loaning money against the allowance they receive. The goal is to teach them to be sensible spenders and to have priorities when shopping. However, if you feel compelled to “loan” them for a bigger purchase than they can afford with their savings, allow them to pay you back and charge a small percentage of interest.
Charging interest may sound like a strict teaching tactic, but it’s an important lesson for them to learn early on. Borrowing money, or taking out a loan, comes at a price. The most important thing is that they can buy what they want because they are able to save money.
Provide an allowance
Whether it’s helping around the house or getting an after-school job, encourage your kids to make some money of their own. Once they do, talk to them about possible ways to use their earnings, whether for an immediate goal, like ice cream, or a long-term goal, such as a bike or cell phone. Discuss how spending now means it will be more time before they can reach a long-term goal.
Providing your perspective on savings and spending can help them decide whether the short or long-term goal is more important to them. We also recommend encouraging them to set aside some money for giving. Talk with them about what’s meaningful to them and how much of their own money they’d like to commit to it.
Be sure to give your kids an age-appropriate allowance. For some, this may be half their age in allowance, so on their birthdays, they get a 50-cent raise. Set some rules for earning the allowance and an amount for your children. These conversations and experiences will give them a first-hand understanding of money and instill good habits that can last a lifetime.
Pay in cash
Credit cards are a great temptation to spend money you don’t have. Show your kids that the best way to buy items is with the money in their pockets. Plus, handing over cash is the best way to learn how to use money responsibly.
If you want to avoid showing your kids how “easy” it is to shop with credit, be sure to shop with cash in front of them. Remember, the principles behind shopping with credit cards should be taught at some point, but their first impression of the “magic plastic” is important. The convenience of credit cards may be confusing in the beginning if your kids are too young to grasp that using credit may come at an extra cost.
Never stop talking to kids about money
The best way to teach your kids the value of money and the importance of saving is to lead by example while allowing them some responsibility. Give your children an allowance for what they might want to buy, and encourage them in various ways. Familiarize them with simple record keeping and the way savings accounts work.
Most importantly, never stop talking to your kids about money. As they get older, focus on being transparent with finances, from simple cash to paying for college. If you need additional help with teaching topics or resources, visit Your Money Guide on our website.