Parents, you want what’s best for your children. So, at a very young age, you start instilling in them lessons that will last a lifetime.
For example, you know that giving them a steady diet of nutritious foods and teaching them good manners now will help them grow into healthy, well-adjusted adults later.
It’s no different with finances. Waiting until they’re grown and flown to teach them the importance of financial literacy is not the best policy. Rather, start teaching them the basics as soon as they’re old enough to know that they should deposit coins in their piggy bank — and not their mouths.
Some experts suggest that children as young as 3, 4 and 5 years old can start learning, since that’s when they’re able to make choices, reason, and learn family values.1
By the age of 6, most children are able to grasp some money concepts. By the age of 7, they’re already forming money habits that will stick with them.1
And kids who learn good financial responsibility will grow into adults who are better equipped with money skills that will impact major life milestones such as marriage and buying a home.1
Most Americans think it’s the parents’ job to educate their children about money. However, the majority are reluctant to discuss household finances. That’s because many have feelings of self-doubt in their ability to teach about money matters.2
Don’t despair. Here are some tips to help you get started. Once you do, you might find yourself on a roll.
Start financial literacy lessons when they’re young
Starting money lessons when your child is 3 or 4 might involve letting your little one hand over the cash (or credit card) to the cashier for the treat at the bakery. Once they know how to count coins, let them figure out themselves how many quarters, dimes, and nickels they’ll need for that chocolate chip cookie. With so many people paying for items with the tap of their phones, it’s easy to think that using cash is out of date in a cashless society. But children need a tangible representation of money so that they know its value and that it’s not “free”.3
Kids who are 5 to 8 years old might benefit from learning some basics, such as money has value and the choices you make with it makes an impact.1 For example, show your kids the receipt from your trip to the grocery store and explain how much money different items cost.
Discuss with kids who are in their preteen years about the different uses of money: saving, spending, investing. Help young teenagers manage a budget and discuss supporting philanthropic projects or charities.1
Save, spend, give strategy
If you decide to give your child an allowance, set up three separate buckets (saving, spending, and giving) for them to deposit their money. Not only will it teach them to responsibly spend and save, but also to budget wisely.1 It will also instill in them a giving spirit. All will lead to valuable life lessons, such as self-discipline, goal-setting, planning, and delayed gratification.
Younger children will probably opt to save for a toy or other small items, rather than their future. That’s okay. As they mature, they’ll be able to increase their savings for larger purchases and the days ahead.
As your children grow, let them contribute some of their money to something they enjoy. Maybe it’s to a ticket to their favorite theme park or to a streaming subscription. It will increase your children’s appreciation for these items.
Build awareness of costs and conservation
Build your kids’ awareness of the hidden costs of things, such as the heating, water, and electricity for your home. Explain that you save money by turning off the water while brushing your teeth and by turning off the lights in rooms that aren’t being used.
Throwing out unused food isn’t good for the family budget — especially given the high prices of groceries these days. In a recent year, the cost of food had increased 11 percent from the previous year. These price hikes haven’t been seen since the 1980s.4
So be a good example for your children when buying groceries. Get just the items on your grocery list (don’t deviate from it). Or shop online if the temptation to avoid impulse purchases is too strong.4 And be sure to get just what you need for fresh produce. Don’t overstock on fresh berries and bananas, both of which have a short shelf life. Assess what’s in the fridge and cupboards, and with these ingredients search online for a fun recipe you can make together.
Make learning fun
Gamification is a popular and legitimate method for teaching kids important lessons, and financial literacy is no exception. Educational financial apps, online games, and board games can be useful tools in helping kids understand how money works and other financial concepts. (Remember playing Monopoly as a kid?) Also, some kids' money books are geared toward readers as young as 3.3
Parents, set a good example
Part of being a good teacher is modeling good behavior — consistently. Like it or not, your children take note of your spending habits and pick up your patterns, whether it’s noting what you buy, how often you buy things, or whether you look for deals.5 Your actions should match what you preach to your kids. If you communicate to your children that you need to tighten the purse strings to save for a big family trip, don’t go on a shopping spree a week later.
Talking through a decision before making a financial purchase can be a teachable moment. For example, you might tell your child that you’d like to buy a new couch for the living room but that you’ve decided to wait for it to go on sale.
Of course, nobody’s perfect. There may have been times when you’ve made a financial mistake. Be honest about it. For example, did you buy something that you thought you absolutely needed but it took you months to pay it off? Explain to your child the repercussions of your actions — and how it made you feel.
Also, allow your children to make small mistakes that make for teachable moments.1 For example, are they determined to save their babysitting money for a big purchase like a trip? But one weekend they decide to spend a big chunk of their savings on new clothes and eating out? If that puts them a little behind with their savings goal, don’t bail them out. Let them work extra hours to make up for it.
You don’t need to be a financial expert to teach your child financial literacy. And if you start early, it’ll be easier for you to keep the discussion lines open.
As your child grows and increases their financial education, they’ll be setting up a healthy future for themselves.
