10 Ways to Teach Your Kids About Finances

Spring is in full bloom, and we are entering graduation season. It is the time of year when high school students prepare for the next chapter in their lives, whether continuing their education, serving our country, or entering the workforce. Whatever path they choose, parents often wonder if they have done enough to prepare their kids for what lies ahead.

Students today learn many different topics in school, ranging from history and chemistry to writing and math. Many parents wish they had learned more about finances, and they want their children to be taught about it in school. While more states are including financial literacy courses in their curricula, only 25 states require them.  This is undoubtedly a drastic improvement from two and a half years ago when only eight states required financial courses. However, there is still work to be done. We cannot stress enough the importance of teaching kids about saving money. It’s never too early to teach your kids about finances. While there continues to be a push to teach more about personal finances in school, this article focuses on 10 ways you can help teach your kids about finances:

Use Positive Money Talk

Children are little experts at mirroring their parents’ actions. We send unconscious messages with the specific verbiage we use, and we often don’t realize it. Our children pick up on that well before we are aware of it.  Consistently using negative, anxious, or stressed language around money can give finances a negative connotation. Knowing that, why wouldn’t we all strive to be better images for our kids to mirror? Instead of “We can’t afford that,” try instead, “We have to save for that.” Focusing on positive verbiage will not only help your children, but you as well. You will be amazed at the other areas of your life that will improve if you make the language surrounding that aspect of your life more positive.

Start Small and Simple with Financial Literacy

Teaching your children about finances doesn’t have to be complicated. Having kids help around the house not only teaches responsibility but also introduces them to financial literacy. You can assign monetary values to chores that need to be completed around the house. The amounts do not need to be substantial. Do you remember that feeling of wealth you experienced as a child when you had money in your wallet? The numbers on the bills were almost irrelevant. Chores help teach the value of money and that money does not grow on trees. Earning money for chores around the house can also help kids learn the value of hard work since they receive immediate and positive feedback. Both of these lessons are best learned sooner rather than later.

Savings Start Early, but Earn Rewards

The more chores your kids complete, the more money they can earn. This is an excellent opportunity to teach your kids about saving money. A physical piggy bank is a great place for them to start collecting their savings It’s never too early to show them the value of setting money aside for future needs. We often hear clients regret not saving for retirement earlier. Use the piggy bank as a way to teach them to treat earned money as both for now and for the future. It’s important for everyone, not just kids, to view incoming money as more than spending money in the present. When your child has their first job and earned income, the savings can be in the form of an IRA or Roth IRA. Young adults may not appreciate how early retirement savings can set them up for future success, but they will look back and appreciate the head start you helped give them.

Set Your Kids Up Financially with Goal-Setting

It can be tempting for parents to buy everything for their kids, but it’s important to encourage children to set savings goals with the money they earn from household chores or a part-time job. Savings goals for kids can teach them about rewards. These goals can be for an expensive toy or an experience they want to have. Achieving these goals will give them a sense of accomplishment and positively impact their attitude towards money in the future. Setting savings goals will also teach money discipline. Want that new PlayStation, the latest smartphone, or Taylor Swift tickets? Achieving any of those goals will take some disciplined and consistent savings behaviors. Learning patience and discipline early on will put kids on a better road to achieving more significant savings and retirement goals in the future.

Teach Your Kids About Common Banking Tasks

As your kids start earning, it creates an opportunity for them to learn about banking. Teach them how to make deposits and withdrawals. They can learn how to use an ATM and fill out a withdrawal ticket or check, a task that has become a lost art, but is still important to know the fundamentals of. Help them learn how to keep track of their balance through a ledger or online banking. There are plenty of online tools that can help them track progress towards savings goals. This becomes rewarding and the foundation for better financial planning in the future.

Budgeting With Your Kids

An online Harris poll found that approximately three-quarters of Americans over the age of 18 have a planned budget, whether that be written or less formal. The grocery store can provide an early introduction to budgeting. Instead of letting your kids fill the cart with whatever they want as you go up and down the aisles, give them a spending budget. Let them decide what they want to buy and how they will prioritize those items. Watch how they decide between a candy bar now or crackers for afternoon snacks. This will let them learn hands-on the compromise that sticking to a budget can create. While this may seem elementary, it will teach them to stick to a budget. That skill that will benefit them whether they are maintaining a family budget or something more complex like a business or project budget. 

Be Open About Money and Finances With Your Kids

Money is often considered a taboo topic, even within families. Avoiding conversations about money with your children can lead them to seek information from unreliable sources like television, social media, and their young friends.  This can create an unhealthy relationship with money or, even worse, false information that can be perceived as fact.

It's important to tailor your conversations about money to be age-appropriate. While it’s unnecessary to discuss retirement investment options with your 3-year-old, it’s still important to introduce the topic in an age-appropriate manner. Talking about money with your kids makes them comfortable having financial conversations. For instances, if there was an unexpected home expense this year, involve your kids in the conversation about how that impacts the family’s finances. In a society where a significant cause of divorce is marital finances, getting your kids comfortable at a young age with these conversation topics sets them up to have healthier relationships with money and partners when they get older. 

Teaching the Value of ‘No’ in Financial Literacy

This one won’t be popular and may come across as harsh, but the word “no” can be valuable in learning about financial literacy. If children are taught they can always get what they want, they may grow to be over spenders as adults. This mindset can also affect other aspects of their lives if they aren’t used to being told “no.” Learning to handle rejection at an early age can help children resilience. Another benefit of the word “no” is that it will teach children the value of money. They will appreciate things more when they do get the “yes.” It’s important to also provide some flexibility. If they are constantly told “no,” you send negative messages about money. Remember, the goal here is to help your kids learn financial literacy and develop a positive relationship with money.

Teach Your Kids About Credit: Authorized Users And Building a Credit Score

With credit card, consumer, and student loan debt reaching new highs every year, we live in a society that does not understand debt. It's important to teach our kids the significance of maintaining good credit, as it is essential for financial success. Debt strategies can be useful, but having poor credit can hinder their effectiveness. One way to introduce kids to credit in a controlled manner is by adding them as an authorized user on one of your credit cards. This allows you to manage their access to credit by controlling the amount available to them. Start their credit limit small, with perhaps $100. Show them that while they aren’t required to pay the balance off in full each statement, there is a cost to paying only the minimum payment. This leads to potentially paying significantly more in the long run for the same purchase.

Another benefit to teaching your children this way is that it allows them to start building their credit sooner. If you add your child as an authorized user early, they can build a good credit score by the time they are old enough to purchase their first car. Please remember that while this can be beneficial for your child, its effectiveness depends on your own financial behaviors and history. If you demonstrate responsible credit behaviors, your kids will benefit from being tied to your account. However, if you are late on payments or accumulating excessive debt, you aren’t just hurting your credit score, you are hurting your child’s as well.

Financial Literacy Learning Should be Fun

Finances can be boring to many people; why do you think financial advisors and coaches have jobs? However, teaching financial skills to your kids doesn’t have to be. Think of family game night as an opportunity to teach financial skills and allow your kids t to make practical financial decisions in a low-risk environment. Games like Monopoly, Life, and Payday provide practical decision-making in the form of a game. As you play, observe how your kids make their decisions. Then, offer them a space to engage in conversations with you. Ask them to explain why they made their decisions in the game the way they did. Don’t be afraid to give feedback or to encourage them to rationalize decisions that could be risky later in life. This makes the parents a trusted confidant when it comes to finances. Remember when I previously mentioned being more open about finances? Creating those spaces where it is comfortable for them to talk about these topics will get them more comfortable and confident in financial conversations.

Remember, financial skills aren’t learned overnight; they continue to develop throughout adulthood. They are built brick by brick as your children age. Don’t be afraid to teach these skills while your children are young. You are helping build the foundation on which they will build their financial future. You want them to be set up to make strong, educated financial decisions, whether they are the Joneses next door or the next Elon Musk or Jeff Bezos. And you never know. You might learn something new, too. 

Author: Nick Domachowski, CFP® | Allegheny Financial Group | May 2024

Allegheny Financial Group is a registered investment advisor. Securities offered through Allegheny Investments, LTD, a registered broker/dealer. Member FINRA/SIPC.