Teaching kids about money

We all want to encourage our children in ways that help them become self-confident, motivated and strong in the face of a rapidly changing world. Ultimately, we want them to be safe, happy and well-adjusted—and teaching kids about money can help with that.

If you start the conversation about spending and saving at a young age, key principles will become deeply rooted. Looking for ways to teach children to save? Here are some ways to get started:

Talk about money

Early memories are imprinted for life, and money memories are no different. Here's one idea for how to teach your child financial responsibility: When you buy things with credit cards in front of your kids, show them the resulting bills—compound interest and all. It's a natural way to start building financial literacy for kids. With a real-life example, they can start to understand the real costs involved—and you can start a conversation about the difference between wants and needs, too.

Teaching a child about money can be as simple as counting coins.

Make it visible

Financial literacy for kids has never been more important since we are living in an increasingly cashless age of credit cards and one-click digital transactions. There's value in exposing kids to coins and dollar bills—especially as you think about how to teach kids to count money. Consider buying them a piggy bank they can fill with quarters and dimes. This will help them appreciate the physical act of saving. You could even consider using this strategy for teaching preschoolers about money. As they get older, you can teach children to save by opening an account with them at a brick-and-mortar bank branch. Encourage them to deposit some of their weekly allowance in the account, and share their statements so they can see any interest they earn.

A child rides his bike over a ramp.

Set goals to teach children to save

As soon as they're old enough to grasp the concept of saving, you could encourage them to reach for bigger goals and to come up with a concrete plan to keep them on track. How will they earn money to meet their goals? Will they set aside a portion of every dollar earned toward their goal? Will they forego the temptation of impulse purchases as they save toward their goal? One way to encourage their savings goal is to match contributions they make to their savings account. (Later on, when they have earned income, you could even consider matching savings they contribute in a Roth IRA.) Learning to save for big goals at an early age will set them on the right path for saving for a home or retirement when they grow up.

Four kids find a way to make money by starting a bake sale

Earn money at an early age

Working for pay at a young age can provide valuable lessons about managing money and budgeting, and influence the financial choices that children make as they grow older. If your child is too young for a regular job, talk to them about how they can start a microbusiness. Work together to write a simple business plan, asking your child: What do you want to sell, and will people want to buy it? Will you take custom orders, or do you need to build up an inventory? Who are the customers you want? How will you get the word out and advertise?

To get the business up and running, you could consider providing some startup capital in the form of a loan or a gift—just make sure your child understands the difference between the two. It's another way to build financial literacy for kids. If you make a loan, set terms for payments and, possibly, interest. Then encourage your child to use part of their earnings to continue to pay for overhead. Help them set up and maintain records of expenses, pricing, revenue and profit. Meanwhile, remind your child that learning to run a business is just as important as making or losing money.

Teaching kids about money using technology

How to teach your kids financial responsibility? Show them the trade-offs.

Teens are notoriously drawn to the latest fashion trends, and targeted ads on social media offer a million spending temptations: sneakers, delivery, games and gadgets. Your job: Make them aware of the consequences of their purchases. True, they may enjoy that new game now, but it will most likely be sitting on a shelf collecting dust in a month. Meanwhile, the money spent on that game could be earning compound interest in a savings account to help them buy a car when they turn 16.

Teaching kids about money while shopping

How to teach kids about budgets

Most people learn to live on a budget after leaving home, but you can give them a head start if you teach children to save for such things as movie tickets, gas and that monthly stop at the vintage clothing store.

Kids can earn money while learning about a cause. These two children are petting a cat at a kennel.

Teach them the value as well as the cost

You spend money on things that you value, so in a way your spending habits reflect your values. Giving back to others may be important to you and your family. If so, encourage children to donate their money to causes they think are important. When their funds are limited, they can still give back by donating their time. Not everything of value has a dollar amount associated with it.

If younger children want to start a business to meet a community need, chat with them about what it means to be a social entrepreneur. Show them how they can design a business that addresses a cause or issue and uses sustainable practices in keeping with their values. They may even want to donate a portion of their profits to the cause their business model supports.

Teaching kids about money in the car.

Explain the difference between good and bad debt

When they are toddlers, you try to teach the difference between right and wrong. When they are a bit older, you can provide variations on the same theme; for example, there's a wrong way to borrow and a right way. Debt isn't all "bad," especially if used for education and marketable skills. Credit card debt, on the other hand, could be considered "bad" if you use it as a shortcut for things you could wait to buy once you have saved up for them.

Student visits a historical site while studying abroad.

Teaching kids about money through travel

The opportunity to study abroad can provide an incredible college and life experience. There's no rule that says studying abroad has to cost more money than a semester on campus. In fact, the overall price could be about the same—or even less—but it's important to do your homework. Create a budget to help ensure that your child's financial and educational needs are met while also making sure to keep your savings goals on track back at home. Team up to research the programs and countries your child is interested in, along with the costs associated with each program. Don't forget to look up the cost of living, including food, transportation, sightseeing and cultural activities in each location. With a little assistance from you—whether it's money, advice or both—studying abroad can become a life-changing part of the educational journey.

Above all, we want to take care of our kids, but when the time is right they need to go out into the world and fend for themselves—and that requires a toolkit that includes the ability to navigate their financial affairs. Teaching kids about money and how to make sound economic decisions early and often provides a solid foundation that prepares them for financial independence.

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This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.