Help your kids and teens become secure adults who handle money well with these practical tips!
As a mom of 2 little girls, I feel the need to better prepare them for their lives as adults, especially concerning money management. I want to help them make good financial choices (and avoid the mistakes I’ve made along the way).
I know that I can’t expect the schools to teach everything my kids need to know about money (or even all subjects). If I want my kids to manage money well, I need to model healthy money habits (and actively teach them to my kids) so they can learn financial independence.
In fact, research indicates that money habits are formed in kids by age 7. This means parents must start talking to kids about money and modeling good money management skills well before they even start formal schooling.
Why is financial literacy for kids important?
If money habits are formed by age 7, then whatever your kids have learned about money, they have gleaned from you, most likely before even attending kindergarten.
Help maximize your child’s future success as an adult by making sure he has a solid foundation on basic money matters early on as a child and then strengthen those lessons when he becomes a teenager.
This will help your kids to become self-sufficient, independent adults who can take care of themselves and not have to expect help from you (financial or otherwise).
Financial Literacy for Kids: 14 Helpful Tips
You can start by following these simple, practical tips on financial literacy for kids:
Examine your own attitudes about money
What are your attitudes about money?
Do you go out and buy the latest electronic device immediately? (whether or not you have the cash on hand to afford it)
Or, do you save up several weeks for a bigger purchase (and talk to your kids about why you are doing this)?
Are you more concerned with keeping up with your neighbors or keeping within your budget and living within your means?
Your kids will pick up on the money attitudes you have, even if you don’t explicitly teach with words.
Communicate openly about money and finances
Foster open communication with about finances with your kids – no matter their age. Talk about money, savings, debt, credit, retirement, etc. starting when they are young (in age-appropriate ways, of course!).
For example, young kids often think that credit cards are “magic” and you can just buy whatever you want if you have the card. Use cash often and explain how work and money are related. Even my 4-year-old understands the basic relation between work and money.
Actively teach budgeting
Make sure that you take the time to talk about budgeting with your kids. Don’t wait until they are headed off to college. You can start when they are pre-teens and have their first babysitting job.
Help them set up a simple budget and talk about what to do with the money they earn.
Don’t forget to discuss paychecks and taxes too!
Make sure you actively teach your kids how to budget (and don’t wait to have this lesson when they are 16 – start earlier!).
Related: Simple steps to teaching teens budgeting
Discuss Wants vs. Needs
I think a subject that all of us could use (including adults!) is a serious discussion of wants vs. needs.
A financially smart young adult is able to clearly see the difference between what is necessary (needs) and what would be nice to have (wants).
When you budget, you make sure that all of your basic needs are covered first (for example: shelter, food, basic clothing), then you decide what to do with any leftover money after paying for the basic needs (hint: save most of it).
Helping kids and teens see the importance of distinguishing between needs and wants is vital!
- Your daily Starbucks coffee – not a need!
- The latest iPhone – not a need!
- Designer jeans – not a need! (although your teen might feel like it is!)
This is also the time to instill the most important lesson in your children’s brains:
spend less than you earn!
If your kids make this lesson a part of their lives, then you will have won half the battle!
A second lesson related to this one is the value of “opportunity cost”.
Simply put, if you buy the $100 designer jeans with the babysitting money now, then you won’t have that money to attend the concert later. Once the money is used to purchase an item, it won’t be available for buying something else later!
Make Your Kids Work for Wants
Good parents provide everything their kids need, but not everything they want. Yes, you provide necessities (food, shelter, clothing), but not all of the extras.
Kids who get everything they need and want, grow up to be entitled and then expect to get everything they want as adults. Attitudes like this can lead to spending (or debt) problems or poor money management skills.
The Value of Delayed Gratification
Teaching your kids the value of delayed gratification – saving up money and waiting to make a larger purchase – has many benefits. They learn:
- the rewards of working hard
- the connection between saving and spending
- how to develop patience and self-discipline to save money (important for saving money for college, retirement, to purchase a home)
For smaller, less-expensive purchases, you can teach (and show) your kids the 24-hour rule.
Before making an impulse purchase, wait at least 24 hours. Chances are you will probably forget how important that item was, and if you do remember (and have the money in your budget!), you can go buy it.
Some people like to wait longer – even up to 30 days. You can also teach your kids how to comparison shop during the 24 hour period to see if they could get a better deal.
I can’t tell you how many times I’ve either forgotten how badly I wanted some item after waiting 24 hours – or my excitement went away and I realized I didn’t really want it.
Let them make money mistakes when young
Allowing your son or daughter to make money mistakes when they are still young and living with you gives you the opportunity to talk about it and help them learn from their mistakes.
Allowing your teen to make a poor purchase using $50 when he’s young can teach him a lesson that will help him avoid making a worse decision as an adult with $5000.
Let your kids make small spending mistakes.
In the book, Smart Money Smart Kids, Rachel Cruze gives an example when she was young and her family went to an amusem*nt park. In the first hour or so at the park she spent all of her money (on fun games) and her parents didn’t give her more “fun” money to spend for the rest of the day. She said the lesson made a deep impression on her.
Make sure they understand credit and debt
Credit cards are hard because it feels like we have the money to buy anything within our credit card limit, but in reality, credit cards are just loans (often with really high-interest rates).
I think it’s helpful to show your kids real-life examples of credit cards and how they work. If you don’t want to use a real-life statement, make a pretend purchase, talk about the interest rate and payment plans and how, if you don’t pay off the card every month, you actually end up paying more for the item than it was originally worth.
Credit is simply borrowing money that needs to be paid back!
Teens also need to know about loans (which also need to be repaid), especially college loans and mortgages.
You should encourage your kids to limit (or completely avoid) debt.
Related: Help your Teens Avoid College Debt
Teach finance with normal, everyday events
There are thousands of everyday examples you can use to teach your kids about financial matters:
- comparing prices at the store
- using coupons
- asking for discounts
- purchasing in bulk
- buying ahead of time (like Christmas gifts in July)
- talking about interest rates
As your kids get older and closer to leaving for college, you need to help them understand how much money is needed to manage their lives (daily household expenses).
If you wish, you can share your own budget with them, showing them the breakdown for household expenses.
Alternatively, you can tell them how much percentage of your paycheck goes to each major household category (40% to rent, 10% for food, etc.).
I think real-life examples are always the best and most meaningful, but you can also easily create a pretend budget for an average family in your neighborhood and talk about how to break the budget down.
The Importance of Compound Interest
One lesson I want to make sure to give my daughters is the importance of compound interest. Saving (or investing) money over a long period of time can help it grow significantly.
I want to help my girls start saving money early so that they can take advantage of earning more in interest. The earlier you can invest, the more money you’ll have in retirement.
I certainly wish I had started sooner!
Insurance
Insurance is there for emergencies and unexpected events. Many people feel like nothing could happen to them, but the truth is, no one knows what the future holds for them – accidents happen and people died unexpectedly. Being prepared for the future is one of the best things you could teach your kids.
Help your teens understand the importance of having insurance (renters, disability, homeowners, health, life) to help in difficult times. This is especially important if you have a family – insurance gives peace of mind knowing that you and your family will be protected if something tragic happens.
Encourage kids to be Entrepreneurs
Help your kids see the value of using their talents to start their own business. Teach them to be creative. They don’t have to make it a full-time income – but it will teach them:
- perseverance
- the benefit of hard work
- pride in their work
- ways to be creative
- give them a side (or full-time) income
Importance of Giving
Teach your kids how to be philanthropists. Giving expands the heart, shows our human connection to each other, and offers the opportunity to provide a solution to problems in our world today.
Importance of Gratitude
Lastly, help (and model) gratitude for your kids.
For me personally, I struggle with comparing my life (and lifestyle) with other people. When I consciously make an effort to be grateful for what I do have in my life, I feel content in my heart and don’t have a need to purchase something to make me feel better (am I the only one who does this?).
A great parent doesn’t wait until the late high school years to teach financial literacy to kids. Start early, teach budgeting, talk about financial situations and prepare your kids to be financially literate adults! Did I miss any important tips? What do you do to help your kids be financially literate?
