Teaching kids about money at every age

As you raise your children, you teach them essential life skills such as safety, emotional management, cooking and more. But some families inadvertently overlook one critical skill for a successful future: money and how to manage it.

“Kids should feel empowered to manage their money, but many don’t,” says Gunjan Kedia, vice chair of Wealth Management and Investment Services at U.S. Bank. “We don’t think of managing money as an equally essential life skill, or, worse, we think of it as a taboo subject.”

By teaching your children about money management from an early age, you can help them feel financially empowered throughout life.

Here are a variety of methods you can use to teach kids about money and fiscal responsibility, at every age of childhood.

Teaching kids about money: Preschool

• Introduce toddlers to money. Make a game to help your child identify different coins.
• Work on counting skills. Start with helping your child count everyday objects, and then move on to coins and dollars.
• Encourage playing “store.” By exchanging play money for goods, your child will begin to understand the basics of commerce.
• Take them grocery shopping. Try giving your toddler $5 to spend in the store and have them hand over the money to purchase the item and experience the exchange of goods.

Teaching kids about money: Elementary and middle school

• Start paying allowance. Tie allowance to the successful completion of chores around the house. “Give them a budget, whether it’s a small allowance for toys early on or a monthly spending allowance,” Kedia says. “Introduce them to the concept of spending within a number.”
• Open a savings account. Make their first trip to the bank an event. Open the account and encourage your child to make regular deposits from allowances, gifts, etc.
• Stress the importance of saving and setting financial goals. Demonstrate the power of putting away a certain amount of money each week toward a special goal. Have your child track their progress toward the goal and then share their joy when they meet it.
• Explain financial limitations and the value of budgeting. Even in families of wealth, funds aren’t infinite, so children need to understand limitations. Try this: If you’ve planned a family vacation, let your children weigh in on what you will do each day. Tell them how much each activity costs and that you only have a certain amount to spend. Choosing what the family will spend those dollars on will help them learn about tradeoffs.
• Introduce philanthropy. Teach your kids about giving in simple terms, discuss how it fits into your family values and then help them get started. Try this: When your child is five or six, give them three jars—one for saving, one for spending and one for giving. “Plan your charitable giving together,” Kedia says. “It’s the finest way to introduce kids to the positive impact of what money can do. It starts them thinking about its potential and its purpose, and it really gives them a noble reason to be financially sound.”

Teaching kids about money: High school

• Help your teenager open a checking account and get a debit card so they can start making purchases with plastic. Explain the difference between debit and credit cards, especially the concept of interest on loans.
• Teach about other basic banking products like certificates of deposit (CDs) and high-yield savings accounts. Let them know there are choices that can help them increase their savings.
• Educate them about digital payment networks such as Venmo and Zelle and help them start using these popular payment methods.
• Show them how to monitor their bank account online (including for suspicious activity).
• Discuss investing. Explain the difference between saving and investing. Illustrate the power of compounding interest and why your teenager needs to invest early to pay for long-term goals such as college and retirement.
• Support their efforts to get a job and help them start investing. One idea is offering to match your child’s savings in a 529 college savings plan or custodial Roth IRA.

Teaching kids about money: Young adulthood

• Help secure a credit card and make sure they understand all its features (for example, rewards and interest).
• Teach the proper use of credit. Explain that credit cards are not free money and interest accrues when you don’t pay off a balance. There are online calculators you can use to illustrate this.
• Explain the value of building a credit history and help them get started. Let them know their ability to get an apartment or a particular job could depend on it.
• Encourage your young adult to think of themselves as stewards of the family wealth. Remind them that family funds could be used well into the future to support younger generations, keep the family business going or promote good in the world.

How to talk to kids about money

When teaching kids about money, be open about your own experiences with finances, good and bad. And as they get older, explain what kind of financial help they can expect from you in the future, such as help with buying a vehicle, and what will be their responsibility, such as insurance premiums.

“Be transparent about what they can expect from you,” Kedia says. “You don’t have to share what you’re worth, just what they can count on you for. So, have a straightforward conversation: This is what you’ll pay for, and the rest is up to them.”

While broaching the topic of financial matters may not feel comfortable, it’s essential for children to learn how to manage money and set themselves up for a successful future.

“For many of us growing up, money was something you never talked about at home,” Kedia concludes. “Financial acumen is a wonderful gift you can give your kids.”

Interested in expanding your own financial knowledge and improving your finances? Consider these seven tips for managing your money.