17 Ways to Teach Kids About Money
Published: October 22, 2020
Teaching your child how to save and spend wisely can shape his or her future attitudes toward money.
If you're looking to set your kids up for financial success later in life, here are 17 strategies to consider:
1. Demonstrate the Value of Money
It's that familiar writer's rule – show, don't tell. Because visuals can be a helpful learning tool, some experts suggest that young children use a glass jar instead of a piggy bank, so they can see the money they collect. However, there are other visual teaching tricks you may want to employ.
Michael Tanney, director of the Magnus Financial Group, a financial advisory firm in New York City, suggests showing a child a bucket and putting it in a sink and then filling it up. "The water represents money. Turning the sink handles represents the job, and the bucket represents the bank," he says, explaining that if you spill all the water out of a bucket (or spend all your money, using the metaphor) and have none left, you must go back to the sink and work to earn more water (or money). "A bank account doesn't operate much differently," he says.
2. Talk to Your Kids About Money
Even at a young age, kids should understand how you're getting the services and products you're receiving.
Stefanie Lewis, regional wealth planning manager for Wells Fargo Private Bank in Fort Lauderdale, Florida, points out that children see their parents paying for things in a variety of ways, and it isn't always obvious to them what's going on. "They see us use plastic cards to pay for some things, and coins and green paper for others. We buy lattes with our phones. We pay for gas through some invisible encounter between our wallet and the pump," Lewis says. "How do we expect our kids to understand money in the year (2020)?"
The bottom line: Unless you explain to them how you're paying, kids won't understand how much items and services cost.
3. Talk About Money When or After You Watch TV Shows
If you're binge watching a lot with your kids, you may have noticed that there are a lot of money lessons that you can painlessly teach your children by discussing the financial choices that TV characters make. For instance, people often comment on how unlikely it would be that the young adult characters on "Friends" could have afforded the roomy apartments they lived in.
You may risk ruining some of the enjoyment of watching your favorite shows, but depending what financial choices your favorite TV characters are making, you could turn an episode into a teaching moment.
4. Pull Out the Board Games
Monopoly and The Game of Life aren't just fun, family-friendly activities – you do get a sense of how the world and money works when you play them.
And if you or your kid end a game like Monopoly broke and in jail, at least no permanent harm will have been done.
5. Let Your Kids Shop
So your 12-year-old wants a video game, and you've agreed, and you're going to buy it online. Well, not so fast. If your child hasn't ever made an online purchase, this would be a good time to let him or her make the purchase.
With you watching, of course, and you may end up explaining little things, like why there's a three-digit security code on the back of your credit or debit card. It's a micro-lesson, to be sure, but the more chances your kid has to shop and experience money before he or she is on their own as a teenager or young adult consumer, the more likely your child will be a smarter shopper.
6. Stress the Importance of Curbing Impulse Purchases
If your child receives an allowance and spends their money on toys, books, candy and so on, there's an easy way to instruct kids on how to prevent buyer's remorse.
"When children begin spending their own money on toys or gadgets at stores like Target, we encourage Mom or Dad to save the receipts from those purchases," says Mike Earl, a financial planner at The Wealth Group in Minneapolis. Then, two weeks later, pull out the receipts and review the purchases together.
"The question for the child is: How much joy is he or she currently deriving from that item? Was it a worthwhile purchase? The idea here is to help children grow in mindfulness about their spending decisions," Earl says.
7. Start a Coin Collection
It used to be easier to get children interested in coins. You'd find some coins in your change dating back from thirty years ago – and you'd talk about that, and your kid might start collecting certain nickels or pennies.
Now, you're probably using your debit card. Still, if you want to put in the effort of helping your kid collect coins, it can be a nice visual way to teach your child about money, how old coins end up becoming valuable over time and history. The United States Mint has a website that may be able to give you ideas for getting a child started.
8. Discuss Big Purchases With Your Kids
"Kids hear everything you say, anyway, whether you think they are listening or not, so why not talk about money in an intentional way?" asks Lewis.
If you're making a significant purchase like a new car or perhaps taking a big vacation, Lewis suggests talking about what factored into that financial decision. "Did you save up for the purchase for a long time? Does the purchase have particular meaning or significance to you? Talking about 'the why' can teach your kids your values on saving."
9. Encourage Teens to Get Jobs and Earn Money
If you have a younger teenager, you may want to suggest he or she look for opportunities to babysit or mow lawns for money. If you have an older teen, you might want to help them get a job at a restaurant or in retail. After all, if your teen starts working, he or she will appreciate all of the work you do – and what it takes to fund your family's lifestyle.
10. Talk About "Opportunity Cost"
Opportunity cost is not a phrase any normal parent likely uses with their kid – or themselves. But it's become a trendy phrase to describe how buying one thing might prevent you from buying something else.
For instance, if you spend a lot of extra money for months on lottery tickets, by the summer, you may not have money for a vacation. In other words, you've just cost yourself an opportunity.
If your kid wants to spend some of their birthday or allowance money on something you feel is foolish, you might want to get them acquainted with the idea behind opportunity cost.
11. Encourage Your Kids to Give to Charity
Yes, in an ideal world, you're giving your kid an allowance every week without fail, and you've convinced the child to put a little away each week toward charity and savings and so on. But even if you don't live in that world, you could occasionally give your kid some money and let him or her pick a charity to give to.
If your teenager is old enough, you could do a joint trip to a blood bank and give blood instead of money.
And who knows? Maybe those occasional moments where you helped your kid experience giving back to the community will lead to him or her someday starting a nonprofit – or becoming a philanthropist.
12. Help Your Children Open a Bank Account
Even if your teenager doesn't have a job yet, he or she is probably getting money from an allowance or as a gift during the holidays. You can help your teen regularly monitor and set aside money in a bank account. Plus, if you link your teen's bank account to your own, you can make sure your child isn't making reckless spending decisions.
13. Show Your Kids How to Make a Budget
"Sit down together and create a budget that includes categories and monthly expenses. Help them review the budget on a quarterly basis to make sure they stay on track," advises Jeremy Straub, CEO of Coastal Wealth, a financial firm in Fort Lauderdale.
While your child won't be paying monthly bills like a mortgage or water bill, if she or he pays for their own car insurance or cellphone bill, you can factor these extra expenses into a budget. You'll also want to think about whether your teen is saving for college or another major expense, and if so, you'll want to set aside savings and include these expenses in a well-laid-out budgeting plan.
14. Make Saving for Something a Family Project
Would you like to buy a ridiculously large TV? And is that something your kids are interested in? Maybe you'd all like to eventually go on a big vacation?
You could get a jar or an account that everybody can log onto and look at, and you and your spouse and the kids could all agree to contribute extra money when possible.
Even if your kids put in nothing, they will see you and your spouse saving for something big, and that's a good lesson. But if you're saving up for something that everybody wants, your kids might get in on the action, too, and put some birthday money or allowance money into the jar or account as well.
15. Teach Kids to Use Credit Cards the Right Way
"When used correctly, credit cards can be a useful tool to build a solid credit foundation. When used incorrectly, it can give you headaches for many years to come," Straub says.
That's why it's important to discuss the pros and cons of using credit cards, even if you don't feel he or she is ready to start using one yet. If you do feel your teen is ready, you can add him or her as an authorized user of your credit card.
One benefit is that you can monitor your child's spending, and by serving as an authorized user, you may help him or her build credit. The caveat is that you'll be responsible for making sure monthly payments are made on time. Teenagers younger than 18 can't get credit cards on their own, and even once they hit 18, it can be a little challenging. Keep in mind that your child must have proof of income to apply for a credit card of their own.
16. Introduce Your Kids to Basic Investing Concepts
Relaying the differences between merely saving money and investing can help kids understand how to build a strong financial foundation. Brad Robinson, a portfolio manager at CornerCap Investment Counsel, a financial planning firm in Atlanta, says the day his 16-year-old came home with his first paycheck from a part-time restaurant job, Robinson had a talk with his son about growing savings and building wealth by investing.
"Since a picture is worth a thousand words, I cracked open an Excel spreadsheet and showed him the actual growth potential of his first paycheck with compound interest," Robinson says. "He was so impressed with how much more his money could be worth by investing it that he volunteered to put the first $500 he earns into a minor Roth IRA and is committed to contributing to it on a yearly basis."
17. Share Your Past Money Mistakes
Someday your kids are going to be grown-ups, and if you don't want them making some of the same mistakes you did as a young or middle-aged adult, you should share your stories with your children.
If you had a period where you took out payday loans, and things went badly, you might want to mention that occasionally as you drive by payday lending stores with your kids – and tell them what a nightmare the experience was. If you spent far too much on your first car, and it took years to pay off, tell your kids. Repeatedly, until they're tired of hearing your stories.
It may not feed your ego to admit those mistakes, but there are some footsteps in which you don't want your kids following.