Teaching your kids about money is an essential first step for future financial security. It might seem a little intimidating, but with the right tools, it can be easy.
Here are five simple, practical tips for giving your children a healthy financial foundation.
5 Tips for Teaching Your Kids About Money Management
Tip #1: Start with the basics to build a good foundation when they’re young.
There’s no set age to start teaching your child about money. However, personal finance commentator and journalist Beth Kobliner says a good rule of thumb is to “start when your child is old enough to say, ‘Gimme!’”
For children aged 3-5, Kobliner suggests teaching them the following:
- “You need money to buy things.” Teach this by using coins and identifying their value, then discussing how some things are free and others are not. For example, explain that playing with a friend is free, but you need money to buy food or clothes from the store.
- “You earn money by working.” To show this, share about your own job or explain jobs you can see people doing while you’re out and about, like the mail carrier or grocery store clerk. And what better way to drive the point home than by a tried-and-true lemonade stand?
- “You may have to wait before you can buy something you want.” Break out a jar or two and label them for saving. Once your child has reached their goal, let them buy a treat.
- “There’s a difference between things you want and things you need.” Teach your child the difference between essentials and non-essentials. You can do this by having a conversation or completing an activity where your child only has a set amount of coins to sort into different circles labeled food, clothes, and optional items.
If you build a strong foundation, it enables you to teach your kids about more complicated financial concepts down the road — which brings us to tip #2.
Tip #2: Don’t forget about debt and credit.
Once your kids have the basics down, you can move on to more complex topics, like debt and credit.
The subjects of debt and credit can be difficult to explain. However, it’s an essential part of money management education.
Try a simple exercise for introducing the concept of debt and loans to your children. Give them a small amount of money, letting them know you’ll charge 5 percent interest after a given timeframe.
When their time is up, have them repay the loan — including interest. Then you can have them compare the amount they paid back versus the amount they originally borrowed.
Now, it might seem a bit silly to give your child a loan. But you don’t want their first experience with credit and debt to be when they’re 18 and getting their first credit card or taking out a much bigger loan than $10. It’s better to familiarize them with the concept so they have a basic understanding of it before they’re grown.
Tip #3: Consider giving your child an allowance.
Not every parent chooses to give their child an allowance — and of course, there’s nothing wrong with that.
However, it can be an effective tool in teaching children that you must work to earn money.
Did You Know?
According to a recent survey, over half of parents believe allowances should be based on chores. Approximately one in four parents pay fixed allowance amounts each week, while nearly one in seven people don’t believe in giving allowances.
On average, parents give their children one dollar multiplied by their age. For example, you’d give your 6-year-old a six-dollar allowance and your 12-year-old a 12-dollar allowance.
If you’re interested in basing your child’s allowance on chores or other factors, consider the following areas to determine their earning potential:
It’s important to set up clear expectations, so your child understands how completing chores, practicing good behavior, and doing their best in school will affect the amount of allowance they earn every week.
Tip #4: Take advantage of tools and apps to help teach money management.
We may have the best intentions of teaching our children about money, but sometimes life gets in the way. Or maybe it’s simply that we don’t always know what’s appropriate to teach them at a given age and the best way to do it.
That’s where tools and apps can help.
We recommend financial literacy games from Independent Community Bankers of America (ICBA). Kids can learn while they play and have fun with these free money skill games.
The U.S. Mint Coin Classroom is another great resource where children can learn about money through games, art activities, puzzles, and trivia. The website also provides information on the United States Mint, explaining how money is designed and circulated around the country.
Additionally, if you’ve opened an account for your child at your local bank, you can sign in online with them and help them monitor their funds. This is a great hands-on way to teach money management and watch their savings grow.
Tip #5: Teach them how to budget.
Budgeting is an essential money management activity. You can teach your children how to budget and save from a young age.
For example, you might have already introduced the concept of saving to your child by having them deposit their money in a jar or piggy bank. The next step you could take is to teach them how to budget that money.
It’s easy to make this lesson sink in at different ages. When they’re young, have them complete a simple activity, such as dividing coins between different areas on a sheet of paper. As they get older, try something like giving them a set amount of money for back-to-school shopping and letting them choose their supplies.
When your children are in their teens, there are plenty of resources online if their school doesn’t have a financial literacy program. You can try this financial literacy guide for teens for guidance on how to teach your teen about budgeting and money management.
Consider opening a joint account where you can oversee things and empower your child to manage their finances as they get their first jobs. They can often make deposits and withdrawals independently and learn how to monitor their finances.
Banking with Your Child
Financial literacy and money management skills can begin at a young age and continue through the teen years. Children as young as 14 can open a checking account at Mercer Savings Bank.
With a parent or guardian’s oversight, teen account holders can learn how to use our app to check their account balances and make withdrawals and deposits on their own. Find out how to open a youth and student account with Mercer Savings Bank for your child or teen.