Financial literacy for kids isn't just about dollars and cents—it's about learning crucial life skills that will serve them well into adulthood. And while 35 states require students to take a personal finance course before they graduate from high school, there's still work to be done.1 In a recent survey, fewer than 4 in 10 high school and college students could correctly answer five multiple-choice questions about credit scores, loans, retirement savings, investing and interest.2
This gap in financial education leaves students vulnerable to common money pitfalls such as accumulating high-interest debt, not saving enough for emergencies or retirement, and not taking advantage of wealth growth opportunities.3
So, what can you do to help your children become great money managers? Here are six simple ways to set your child up for financial success.
1. Start Early
From learning to balance a budget to using credit responsibly, money management is a skill that takes time to build. And according to the Consumer Financial Protection Bureau (CFPB), you can start introducing some money concepts to children as young as 3 to 5 years old. That's because kids at this age are learning to plan ahead, wait for things they want and finish what they start—the foundation for behaviors that support financial well-being such as goal setting, planning, saving for the future and sticking to a budget.4
Having said that, it's never too late to start teaching your kids about money, either. Begin by modeling good financial habits yourself; as with most things, children will pick up on your actions far more than your words. In addition, research shows that kids benefit from having age-appropriate, hands-on learning opportunities (such as those listed below).5
2. Engage Them in Daily Activities
By getting kids of various ages involved in activities that interest them, they will learn money management from their own experience. Here are a few examples.
Young children (ages 3 to 5)
While preschoolers may be a tad too young to grasp some of the more abstract concepts about money, you can teach them the power of the dollar and how to make responsible choices on how they spend their money. For instance, you can explain how they need to make money decisions when at the store:6
- • Ask them whether that item from the candy aisle they toss into the shopping cart is a want or a need.
- • Give them a few dollars and let them pick which snack to buy.
- • Walk them through your own spending decisions. For example, why did you choose one brand, type and size of milk over the other? Go over factors you mulled over in making your choice, such as the cost, value and how much you think you might need in a given week.
- • When you get home, have them count the change and separate it based on the types of coins. Show them how much each coin is worth.
- • Explain that while some things do cost money, other things are free.
School-age children and preteens (ages 6-12)
The CFPB recommends that kids at this age develop discipline around being frugal, saving and feeling in control of their money. It's also a good age for them to learn how to plan ahead for big events and things they want, as well as manage their time and money to reach a big goal.7
To help teach these lessons, gamify savings by breaking down the different steps and making it clear what the end goal is:
- • Ask them to think about a goal they'd like to save for: a toy, video game, trip to the arcade, movie tickets—whatever!
- • Then, talk about logistics: Why is it important for them to plan now and save for that goal?
- • Where will they stash their money?
- • What trade-offs will they need to make?
- • To help them visualize reaching their goal, you could even create a chart to map their progress.
Teens (ages 13+)
Sure, teenagers don't need to pay the rent or make sure the lights are kept on in the house, but you can still show them the ropes for creating a budget:
- • Help them jot down a list of their expenses, such as spending money for clothes, gaming and dining out, as well as their share of extracurriculars.
- • Consider showing them your budget and sharing some of your budgeting challenges. This could help your child understand that when it comes to money management, nobody has all the answers, nor is anyone perfect with their finances. Plus, being transparent about money lessons you've learned the hard way can teach your kids to be more open, too.
- • Use a money management app designed for teens. This can help them keep tabs on their spending and saving and encourage them to develop strong financial habits. Plus, some apps enable you to link accounts with your teen so you can transfer funds, monitor their finances and incentivize saving. At this age, you can go deeper in the weeds with money management.
3. Be Strategic With Cash Gifts
Because many money concepts can feel abstract, the physical quality of cash gifts from a relative for a birthday, holiday or other milestone can provide a great learning opportunity. Place three jars in your child's bedroom—one labeled “saving," another labeled “spending" and the third labeled “giving"—and let them choose what portion of it goes toward each of the three jars. You can also use the jar system if you give your child a weekly allowance.
This can help your child learn the difference between wants versus needs, as well as how to automate savings and spending (e.g., putting the same amount in each jar each week and allocating a certain amount for specific types of purchases). It can, in a very tangible way, show that money is a finite resource, and present hard choices. Plus, it's fun to watch that money pile up!
4. Encourage Entrepreneurship and Earning Their Own Money
Whether it's selling treats, washing cars or mowing lawns, engaging in entrepreneurship or a part-time job can teach your child creative thinking, problem-solving, resilience and curiosity.8 Plus, one study shows that teens' early employment experiences can lead to long-lasting career benefits, such as higher hourly wages, increased yearly earnings and less time spent out of work.9
Starting a side business—even if it's a lemonade stand in the driveway—can serve as a springboard for creativity and pique your child's curiosity. Support them in drumming up ideas for their venture and figuring out a game plan for executing it. Help them understand what it means to enjoy a profit and what they can do with the money earned. For instance, they can put it back into their business, or they can put it toward a goal.
5. Offer a Small Loan
If your child wants to make a large purchase but hasn't saved up enough money to pay for it, consider fronting them the money and setting up a schedule for repayments. If they miss a payment, charge a small amount of interest. This will help your child understand how borrowing works—and that there are penalties for missing payments—hopefully well before they get their first credit card or bank loan.
6. Get Your Kids Into the Right Savings Vehicles
Making sure your kids are using the right savings products is part of learning money management basics. Here are a few accounts to consider that can help lay a solid financial foundation for your child.
Open a savings account for your kid
Opening a savings account for your child can help them learn to save for the future, manage their money and practice delayed gratification. Plus, as they get a little older, it can help them learn what banks offer, which can be a gateway to discussions on credit, loans, investing and debt. Research also reveals that kids with small amounts of savings (less than $500) set aside for school are three times more likely to attend college and four times more likely to graduate than those with no savings account.10
You'll need to open an account for your child; the minimum age requirement depends on the bank. Before you open an account, talk to your child about what it means to be responsible with their money, which includes tracking what goes in and out. After opening an account, show them how they can use savings to reach major goals.
Open a custodial account
As a parent or guardian, one step you can take to set your children up for financial success is opening a custodial account. This is a type of savings account for kids that you control and manage for a minor, but all the funds belong to them. Some types of custodial accounts, such as a Uniform Transfers to Minors Act (UTMA) account, allow you to transfer virtually any kind of investment or asset to your child. Depending on the state you live in and the type of custodial account, once your child turns anywhere from 18 to 25, the account closes and the funds are transferred over to them. This is money they can use for starting a business, paying for trade school or higher education, or pursuing other dreams.
Save in a money market account or certificate of deposit for your child
Socking away money for your children in either a money market account or certificate of deposit (CD) can give them a boost when they become adults. Another idea: Open a money market with the new addition of a child to use for child-related expenses. You'll be able to tap into funds whenever you like, plus earn interest.
The Bottom Line
Giving your children a strong financial footing involves a mix of teaching them money basics, such as through activities for kids, and providing learning opportunities. It's a delicate dance that requires thoughtful planning and orchestration. But by taking some steps forward today, you'll make steady and fruitful progress—and your child will thank you for it.
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Jackie Lam is an L.A.-based money writer whose work has appeared in Salon.com, Refinery29, CNET, Business Insider and BuzzFeed, among others.
Sources/references
1. 2024 Survey of the States. Council for Economic Education. 2024.
2. SPARK Institute & Corporate Insight report preliminary survey results supporting need to improve financial literacy among high school & college students. SPARK Institute. December 17, 2023.
3. Lin, J.T. et al. Financial Capability in the United States. FINRA Investor Education Foundation. July 2022.
4. Help your young child reach money milestones. Consumer Financial Protection Bureau. Accessed May 30, 2024.
5. LeBaron-Black, A.B. et al. Talk is cheap: Parent financial socialization and emerging adult financial well-being. Family Relations. August 9, 2022.
6. Young children and shopping. Consumer Financial Protection Bureau. Accessed May 30, 2024.
7. Help your school-age child and preteen reach money milestones. Consumer Financial Protection Bureau. Accessed May 30, 2024.
