By Winnie Sun
Learn more about Winnie on NerdWallet’s Ask an Advisor
You might get surprising responses when you tell your kids you can’t buy a toy they want: “Swipe your credit card” or “Go to the bank to get some money,” they may tell you. Kids simply don’t understand the bigger financial issues that inform such decisions, and we often don’t talk to them about finances until they are older. But children can quickly learn about money and its value and the kinds of choices people must make.
Kids learn through observation and repetition, so the more regularly you talk about money and demonstrate the role it plays in their lives, the better. By turning everyday topics or activities into money lessons, you can take an active role in teaching your kids about finances. These 11 tips will help you raise financially savvy children.
1. Start money conversations early
Even at a very young age, kids can understand the concept of more versus less. You can introduce your kids to money as soon as they can count. Have them count change as a way of exposing them to money. Create two piles and have them tell you which one has more coins and which one has fewer. Once they can understand the value of each type of coin, the same game becomes more challenging: Which pile of change is worth more? You’ll be able to build on this basic knowledge in the future.
You can also encourage young children to read price signs at the grocery store and explain to them what it means for an item to be on sale. You can explain why you’re shopping at a discount store or why you’re buying certain items in bulk. As they get older, you can even have them calculate the price per unit to figure out which item is the best deal.
2. Tailor lessons to your child’s age
Preschoolers and toddlers can learn about money through simple tasks like sorting coins, but when kids are in third or fourth grade, they are ready to discuss more complex money matters such as budgeting and planning how to save for an upcoming family vacation. As your children get even older, you can talk about how their choices affect family finances. For instance, when your children leave the lights on in a room unnecessarily, you can explain how it makes the family electricity bill more expensive — not to make them feel guilty, but to teach them that simple choices can have a big impact on spending or saving money.
3. Give your children an allowance
Giving children an allowance helps them build money awareness. It’s better to make a mistake at 12 with $50 than at 35 with $50,000. However, you should give a dollar amount that matches your child’s age and ability to handle the money. For instance, a 10-year-old could get $10 a month. Since the main goal is to let your children learn from their mistakes, try giving them total control over how they use their allowance.
Of course, the money you give them can be in exchange for taking care of household chores such as making their beds, folding towels or contributing to other family duties. Taking on these responsibilities and earning money for doing so is a great first step in preparing your child for getting a job.
4. Encourage your children to earn money through work
I remember selling avocados in my front yard to my neighbors at 9 — my first taste of entrepreneurship. Creating or helping your child find opportunities like this to earn money with jobs that interest them is a great way to teach the value of hard work. It also helps eliminate the notion that they are entitled to get whatever they want.
Help your children come up with a list of responsibilities or jobs they could do for pay. Make sure they can actually do the jobs and that they will help your kids learn and develop skills. For younger children, such jobs can be more about completing routine tasks such as getting dressed for preschool, making their bed or simply completing homework. Older children may be able to do yardwork, baby-sitting or other helpful tasks for neighbors.
5. Involve your children in major family purchases
When your family is planning on making major purchases such as a home, new car or kitchen appliances, include your kids in the process. You can teach them about the importance of doing research before making a big purchase, the factors that go into your decision-making and how you compare products and prices. Let your children accompany you when you are ready to make the purchase.
6. Let your children make spending decisions
Say your kids receive money as a gift or from work. Should you let them spend all of it during your next trip to the store, or should you make them save the money for a rainy day? It’s important to give your kids the power to decide what they want to buy with their money because it can help them understand the need for saving money. Your children might pick out items that are priced higher than they can afford. Instead of coming to your kids’ rescue by providing additional cash, help them understand that because they don’t have enough money, they will have to wait until they have saved up for the item they desire. Otherwise they can choose a less expensive item within their budget.
7. Explain needs versus wants
Though it helps to allow your children to make spending decisions on items they want, it is important to help them understand the difference between things they need and things they want. For our adult clients, we call this budget planning. But this same concept — questioning whether expenses are for necessary items or nice-to-haves — is important for children, too, particularly because it will help them make smarter decisions with their own money in the future.
For example, when you’re with your children at the store, they might want that $35 box of Legos. Talk to them about what else $35 will buy. Give your children an idea of what things at home cost. Would you rather have the Legos, or would you rather have a ticket to the zoo, or even a bag of groceries? The more familiar they are with how much things cost, they more they are able to judge what has greater value to them and what they can live without.
8. Teach your children to give
Help your children understand that it feels better to give than to receive. Whether you are teaching your children to give to friends in need or giving to a charity, this is an important lesson that will inform their outlook in the future.
Have your kids pick an issue they care about and set a goal for an amount of money they would like to give to a charity focused on that topic. They can then set aside a portion of their monthly allowance or money from their job to save up specifically for their charitable giving goal. This teaches both the importance of saving and the joy of giving.
9. Teach your children about delayed gratification
This is an easy one to teach, even for your youngest of children. I remember taking my children to Target or Toys R Us and reminding them that we are “just looking.” If you are consistent with your messaging, your children will not feel deprived. They will learn that toys come at birthdays and special occasions and will no longer expect them every time you shop. Teaching kids the concept of delayed gratification can also help in combating the “buy now, pay later” mentality that can lead to credit card debt.
Reinforce the idea that good things come to those who wait. For instance, you can microwave a store-bought frozen pizza and then make a homemade one with all the ingredients your kids love. Although the homemade pizza takes longer, it tastes way better.
10. Help your children track their spending
Knowing where your money is going is one of the biggest steps forward a child can take when it comes to enhancing money-management skills. By teaching kids to track their spending, you’ll help teach them to be mindful of how much they are saving and spending each month, making budgeting a breeze in the future.
Have your children use a spreadsheet or notebook to keep track of where their money goes each month. They can monitor how much they spend and on what, as well as how much they have saved up for big-ticket items and toward their giving goals. For our clients and their children, we provide a budget worksheet that calculates how much is spent each month. You can give your kids their own file or special place to store financial statements and receipts.
11. Teach your children about credit cards and budgeting
Before teenagers head off to college, they need to learn aboutcredit cards and budgeting to help them avoid credit card debtproblems. College students often start getting preapproved credit card applications by email and mail. Educate your kids about how these cards work before that happens. Important points to discuss include how you pay your bill, what happens if you don’t pay, credit scores and what to do if you lose your credit card. Consider sending your children to college with debit cards instead of credit cards to ensure that they start budgeting and don’t spend more than they have in their accounts.
Although everyone wants their kids to enjoy healthy financial futures, parents often forget to provide children with a good understanding of money. With these simple activities, every parent can help create a solid financial foundation and teach kids good personal finance habits so they can become money-mindful adults.
Winnie Sun is the founding partner of Sun Group Wealth Partners in Irvine, California.