When you’re a parent, you play many roles — nurse when they’re sick, tutor when they have homework, therapist when they get their heart broken, and chef when it's dinnertime.
One of the most important roles you’ll play is teaching your child financial responsibility. Kids need to learn how to earn, manage, and think about money, so that they’ll be better prepared for their future.
I’m hoping my kids gain smart money habits from growing up in our household and watching how we handle our finances. Financial responsibility is one of the core values we’re trying to teach our kids.
Fortunately, there are plenty of simple ways to weave money into everyday conversations and guide kids to manage money well.
Erika Taught Me
- Kids learn money habits largely by watching their parents deal with money.
- Personal finance isn’t too complicated for kids to understand.
- Kids need to learn the value of work and how to save and spend money responsibly.
- Parents can guide older teens in budgeting, using credit, and investing for the future.
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1. Make Money Real
While society may be shifting toward digital money, it’s still important to show your kids the reality of money.
Alexa von Tobel, the founder and CEO of LearnVest.com and a mother of three, says that when children are very young, they need to learn how to handle physical money before moving on to digital money.
“Make it very visual,” she says in her interview on the Erika Taught Me podcast.
“I think in this day and age, when Amazon ‘magically’ delivers everything to your door — and I think my kids think presents fly in with fairy wings — I really go out of my way to sit down and help them understand ‘this is what this costs.’”
A four-year-old can’t grasp the idea of money based on an entry in your online bank account. But a dollar bill or a fistful of coins is tangible.
Give young children chances to deal with physical coins or bills. Having piggy banks or money jars for different goals is a great visual tool.
2. Talk About Money with Your Kids
If you don’t know where to begin, you can simply start by just talking to your child about money. Kids absorb what you as a parent tell them — and it’s a daily, lifelong effort.
“We’ve all been told our whole life, ‘Don’t talk about money, it’s not polite,’” says von Tobel. “Well, how are you ever going to get good at money or learn about money if you don’t talk about money?”
Being open with your kids (to an appropriate degree) about your finances helps them learn how you deal with money.
Every time your child wants you to buy something, it’s an opportunity for a money lesson.
Discuss how your budget guides your buying decisions. Maybe you use tactics like a seven-day waiting period on impulse buys. (If you’re my kids, you know we’ll never purchase a brand-new car due to depreciation.)
Make money conversations a regular part of life, and be deliberate. If most of your finances are automated through direct deposit and autopay, discuss those habits with your kids so they don’t go unnoticed.
3. Encourage Saving for Wants
“Delayed gratification is the most important concept for kids to understand,” says von Tobel.
(And aren’t we all still learning this, whatever our age?)
Start your kids early. If you pay them a dollar for an extra chore, encourage them to save and not spend it right away. Saving up for a $10 toy at age eight helps train them for when they need $10,000 or more for their first car!
Help kids set goals with dollar amounts and deadlines, and celebrate with them when they’ve met that goal.
Teaching kids to save money is a lifelong skill they’ll appreciate.
READ MORE: How Much Should You Save a Month?
4. Show the Value of Work
Teach your child that work is not only necessary but has value.
When von Tobel recalls her childhood summer jobs, she says, “It felt so empowering as a child.”
You can help your child learn the importance of work by giving them paid tasks around the house when they’re small, such as watching a younger sibling or weeding the garden.
“My five-year-old yesterday earned a dollar because I was juggling three kids and I said, ‘If you can go and get Rosie’s clothes and help Mommy out today, that’ll be a chore and I’ll give you a dollar. He got so excited,” says von Tobel.
Your child learns how rewarding work can be. They get to make spending and saving choices. Then when they’re old enough for a “real” job, they’ll apply those lessons on a larger scale.
5. Open a Savings Account
Piggy banks can work for more visual savings, but you can also take your child to a local branch to open up a custodial savings account.
Once your child has a savings account, encourage them to make deposits from earnings and gifts.
Go over the account monthly to see how their savings have grown (and talk about interest if their account earns any).
You can also help them compare savings account options and choose a high-yield savings account over one with fewer benefits.
COMPARE: Best High-Yield Savings Accounts
6. Model Budgeting Strategies
Budgeting is an important life skill, and kids can start building that muscle from a young age.
Even early elementary-aged kids can help with financial tasks like grocery shopping and picking school supplies. You can show them how to take a fixed amount of money and decide how to spend it.
Look at flyers to compare store prices and take your kids along when shopping. Show them how to read price tags and understand marketing tactics so they get the best value for their money (and don’t get duped).
Kids should also learn to budget for their wants. When they get to decide how to spend and save their money, they’ll realize they can’t buy everything they want and need to set priorities.
“Kids model what we do, so if you do not have a great relationship with money, your kids will not either,” says von Tobel.
READ MORE: How To Budget: 5 Simple Steps
7. Model Smart Credit Usage
When talking about money with children, also explain the difference between cash and credit.
I often emphasize to my kids that when I use a credit card, I’m technically borrowing money that I’ll repay by the end of the month. They know credit is a tool, not a magic wand.
Teenagers may be eligible to become authorized users on one of your credit cards. Talk about this decision beforehand. Explain when and why they can use it (for example, what counts as an “emergency”), and when they must pay you back for any charges.
This teaches them how to use credit wisely and eventually builds their credit score.
8. Embrace the Power of the Roth IRA
For children old enough to have earned income, help them open up a Roth IRA as soon as possible. Your child can deposit after-tax earnings into a Roth IRA and let the money grow for decades.
This is great because kids’ tax rates are low and qualified withdrawals when they’re older are tax-free and penalty-free.
9. Invest Together
As a parent, you can open a custodial brokerage account and manage it on behalf of your child. Then work with your child to choose and monitor investments so they learn how the stock market works — including understanding that it has frequent ups and downs.
Learning how investment works is just one key part of financial literacy for kids, but you can’t leave that education up to schools.
Only 25 states claim to require a standalone personal finance course for high school graduation as of March 2024, reports Next Gen Personal Finance. However, in many of these states, the content is merely embedded in other courses, so it’s hard to say how much kids learn.
READ MORE: How To Start Investing
FAQs
When should I start teaching my child about money?
Start them young! Most money concepts are fairly simple.
“Personal finance is not even more complicated than second-grade math,” says von Tobel.
She explains her eight-year-old has started a business and understands concepts like profit margins and inventory. So don’t shy away from money lessons and conversations — your child might surprise you.
How much allowance should I pay my kid?
The amount is up to you, though von Tobel prefers not to call it an allowance, because “nowhere in life does free money show up.”
Keep it simple, perhaps paying a dollar or two for weekly chores, and you might increase what children can earn as they grow older. Just be clear so your child knows what you expect of them and what they’ll get if they hold up their end of the bargain.
Should you tell your child about your money problems?
Honesty is important, but that doesn’t mean you should share every problem with your child or complain about money. It’s fine to share that the budget is a little tighter if you’re struggling — your child is probably picking up on it anyway.
The Consumer Financial Protection Bureau has guidance for planning money conversations with children and says parents should also be aware that kids notice our moods and attitudes, not just the words we say about money.
TL;DR
Money lessons are way too important to ignore, so take the time to have regular conversations with your child about money.
“Money should be talked about, even when it’s stressful,” says von Tobel.
Strong financial literacy is one of the most valuable gifts you can give to your children.
You can listen to the full interview with Alexa von Tobel or check out these other episodes on financial literacy from the Erika Taught Me podcast:
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