How To Teach Kids About Money & Raise Financially Savvy Children

Hey parents, we get it. You worked your way through college. You pinched pennies and barely got by for years. But now when you look around, you see that  your diligence has really paid off.

Your hard work and prudent financial management has put you in a fairly comfortable position, which is great, but for better or worse, you’re realizing that your kids aren’t going to experience the same struggles you did.

New technology has made it frighteningly easy to spend money without thinking twice. Every ad your kid sees on Instagram is making them feel like they just need this one more “thing.” You’re fighting the good fight, but it’s a hard job! It can feel like it’s you versus the rest of the world in the battle for your kid’s attention (and dollars).

Less than half of the public schools in the US require children to take personal finance classes, which leaves an enormous gap in their education. Financial literacy is vital for long-term success and financial well-being, yet most young adults lack fundamental skills like budgeting, saving, and investing. It’s up to you to fill that gap.

To help you in your efforts to teach your kid responsible and enduring financial behavior, we’re here with some simple and practical advice so you can lay the groundwork for your child’s financial savviness and long-term success.

Tips for Younger Children

1. Lead by example.

• Children watch and learn from everything you do. Grabbing that impulse buy in the check-out aisle is sending the message that this is okay behavior.
• Engage in open conversations about money to normalize such discussions. Reduce taboos by sharing positive money stories, like how waiting to make a large purchase until it was on sale allowed you to move the savings to your family’s entertainment budget.

2. Involve them in financial decision-making. 

• Use real-world experiences when you go shopping to demonstrate good financial choices. For instance, you could start with a set grocery budget, and a list of needs and wants – “We need carrots and green beans for dinner, but you want your favorite potato chips for a snack.” Then, go to the store and guide them through making their shopping decisions.
• Encourage children to participate in small family financial decisions. They could have some really out-of-the-box ideas your adult brain didn’t think of. Even if they don’t, it opens up a conversation about how money works that isn’t in the abstract, and it demonstrates they’re part of the team.
• Introduce an allowance. Ask whether they think allowances should be tied to chores and why. Include them in the decisions around how they earn their money, and they may be more willing to follow through if they feel like the chores are their idea.

3. Utilize teachable moments.

• Teach children about the value of money by talking regularly about needs and wants. Quite often you hear, “Can I have….?”, so use it as an opportunity. A good response is to ask, “Do you need that or do you want it?”
• When you’re shopping with your child, consider comparing the prices of things they want to the prices of the things they need that they don’t even realize you provide.
• Use physical money and transparent piggy banks to help your kids understand the concept of money. Today’s children don’t see actual money even half as often as every generation before.
• Get the give-save-spend “piggy” bank, a transparent bank divided into sections, to show your children that having money doesn’t mean it should be spent. By starting a conversation about saving for the future, you can begin to instill the groundwork for avoiding instant gratification.

Tips for Teens 

1. Help them create a budget.

• Sit down with your older kids as their needs and wants change and help them create a budget. If they have a job, consider matching a portion of their earnings to set the overall budget limit. 
• Explain the importance of saving money, emergency funds, and how unexpected events can throw a person of any age for a loop. Decide together how much should be saved from each paycheck, then let them know you will match every dollar they save. 
• Have a conversation about the money you spend on them in terms of bills, food, entertainment, personal care items, and gas money. Ask them what things they think they should contribute to and make a plan together. They may balk at first, but participating in the overall well-being of the family can instill a new level of responsibility.
• As they begin following a budget and contributing to family expenses, you have the opportunity to use their missteps to gently educate them about the consequences of impulsive spending and the benefits of saving. Better you get there first before the real world teaches them the hard way. 

2. Open a bank account.

• Involve your child by researching banks together based on fees and requirements. When you’re at the bank ready to open the account, be a quiet, supportive observer as they handle as much of the process as possible.
• Help them make checking their bank balance part of their daily routine. This creates an awareness of spending since most kids don’t interact much with cash.
• Plan a regular sit-down to go over their monthly statement. You can task them with adding up all the money they spent in a specified category and see how they react. They’re likely to be in for quite a surprise when they see how much they spend on things they don’t really care about in the long run. 

3. Teach them about taxes.

• If your child is like we were at their age, that first pay stub is going to come as a shock. “Who the heck is FICA and why are they taking my money?!” Use this as an introduction to taxes. Explain what taxes are used for, talk about Social Security and Medicare. These are perfect opportunities to get them looking at their financial future and the reality that their money isn’t entirely theirs.
• This is also a good opportunity to talk about sales tax. Give them a task to look up what items are and aren’t taxable in your state, and what those taxes go to pay for that they use every day.

4. Talk seriously about credit and debt.

• Get your game face on and explain how dangerous credit cards and poor habits around spending can be if used irresponsibly.
• Explain the basics of credit cards and create a lesson demonstrating high-interest debt. Ask them to look up the cost of an expensive item that they want, assign a 30% interest rate, and walk them through what it would look like if they purchased it on credit without having the money to pay off the debt quickly. Showing your teen what it looks like on paper may be appalling enough to prevent some big mistakes later on.
• On the other hand, you also need to talk to them about the importance of credit and why they need to have a healthy relationship to using credit. Help them understand the reasons to have a good credit history, like being able to finance a car at a low rate, or to get a lease on their first apartment. Consider getting a joint credit card to build their credit and their awareness. Be relentless in your ongoing communication about their use of the card.
• Ask them to sit down with you when you go over your own credit card statements so they can see what kinds of things an adult with a family uses a credit card for. Talk to them about mistakes you’ve made and how you cleaned them up.

5. Introduce investing.

• Let your child choose a stock or two to invest in. This can be a hypothetical or actual investment using your money, theirs, or both. Once they’ve chosen their stock, sit down together to regularly track its performance and keep them engaged in the future of their money. 
• Explain that the longer a portfolio remains invested, the more it should grow. Use an online compound interest calculator and run through a few investment scenarios. Stress the importance of staying in the market and not getting freaked out by market shocks. Point out the growth of their stock and reinforce the concept that they earned money without going to work. You can apply the percentage growth to a larger number to hammer home how impactful investing can be as they get to higher dollar amounts.
• Even if their stock pick goes down in value, don’t let this be a wasted opportunity. Try to get some explanation for why the stock went down in value and use this lesson learned as a basis for the next decision. Does the dip in value appear to be short term? If so, let them make the decision if it makes sense to keep holding the investment or not.
• If your child shows a real interest in learning about investing, consider opening a custodial brokerage account for them. Involve them in the process of opening the account and encourage them to research different investment options. As they become more savvy, let them make some decisions on their own and come to you with their reasoning before making the investment.

6. Consider a Roth IRA.

• Explain to them the concept of a Roth IRA, emphasizing that it allows for tax-free withdrawals in retirement. Let your child know that by putting money towards this account early when their income and tax rate are low, they could benefit from decades of tax-free growth on their investment.

Final Thoughts

There are many ways to instill values around money in your children starting at an early age. Lead by example and teach about budgeting, banking, saving, taxes, and debt. Share your experiences, be transparent about your financial decisions, and encourage open dialogue. Remember, every money-related conversation is an opportunity for growth.

By equipping your children with the knowledge and skills to manage money wisely, you’re setting them up for success in the long run. Keep up the great work, parents—you’re making a difference in your children’s lives that will last a lifetime.

For the last quarter-century, the professionals at SK Wealth have perfected The Integrated Financial Advantage™, a unique financial planning approach crafted to provide our clients with personalized guidance so they can live with intention both tomorrow and today.

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