As financial skills and literacy become more crucial than ever, teaching your children about money can set them up for lifelong success. Yet, many parents struggle with how and when to teach their children about money and financial responsibility.
At TFS Advisors, we understand that preparing the next generation for financial independence is just as essential as planning for your own future. Through comprehensive financial planning, we’re here to support your efforts in building a strong financial foundation for your children.
Below we’re offering practical tips and strategies to make financial literacy a priority for your family and kids.
Why Financial Literacy Matters for Children
Did you know that children begin forming opinions about finance around the age of five? A University of Michigan study found that children around this age already have “distinct emotional reactions to spending and saving money,” which then translates into real-life spending behaviors.1
Another study found that 18 to 21-year-olds were more than 40% less likely to experience late payments on credit cards and other loans if they had three or more years of financial literacy education in high school.2
The evidence is clear—financial literacy in childhood sticks with kids through young adulthood (and likely beyond) to help them manage money more confidently and reduce the risk of incurring unmanageable debt. When they understand financial basics, they’re better equipped to handle more complex financial decisions as they grow.
Start With the Basics
Foundational concepts—like saving, budgeting, earning, and understanding the value of money—are some of the core building blocks of financial literacy. Depending on how old your child is and what their experience with finances has been so far, you may want to start by discussing these important basics first.
Mastering the basics can help your child better grasp more complex topics later in life, such as:
- Investing
- Saving for retirement
- Managing lines of credit (like a credit card)
- Deciphering between “good” and “bad” debt
- Planning for major life events (buying a home, starting a family, starting a business, etc.)
Age-Appropriate Financial Lessons
As we mentioned above, it’s important to be realistic in your expectations for your child. Your kindergartener may not be able to grasp the concepts of investing quite yet, but you can still help them understand the value of a dollar or the difference between spending and saving.
Then, as your child grows, their capacity to comprehend more involved financial concepts will grow as well. Let’s take a quick look at how you may want to consider introducing financial literacy to your kids in an age-appropriate way.
For Young Children (Ages 3-7)
With younger children, start out simple. Help them identify coins and bills, and show them how that tangible money is used to buy things they want and need. Give them a piggy bank or savings jar, and show them how their money (perhaps an allowance or birthday money) can grow over time through their savings.
If your kids love to play pretend, perhaps playing store is a fun and natural way to start integrating these basic lessons. Role-play shopping (one of you is the customer and the other is a cashier) to help them see the exchange of money for goods in action.
For Older Children (Ages 8-12)
Introduce more complex ideas like earning money, basic budgeting, and making thoughtful spending decisions. Older children may be better at understanding the difference between “needs” and “wants,” which is an important lesson to master before they start earning money of their own.
At this stage, you may want to help them open a basic savings account in their name and establish short-term savings goals (say they want a new video game or tickets to an upcoming concert).
For Teenagers (Ages 13-18)
Teenagers can handle more financial responsibility, though you’ll still want to provide some supervision and guidance along the way.
They may be comfortable taking on financial responsibilities like:
- Managing a bank account
- Opening a credit card
- Taking on debt (like a car loan or student loans)
- Learning about the basics of investing (perhaps even working with you to contribute to a custodial brokerage account).
This may also be an ideal time to discuss the importance of credit scores and the potential benefits and risks of credit cards. If your teenager has a summer or part-time job, consider also helping them create a personal budget for spending, contributing to their savings goals, and paying down any debt they might have.
3 Practical Tips for Parents to Teach Financial Literacy
Not sure where to start while helping your children improve their financial know-how? Here are three simple tips for teaching financial literacy to kids of all ages.
Tip #1: Lead by Example
As one psychologist Dr. Carl E Pickhardt concludes, “Parents vastly underestimate how closely they are observed and how constantly they are evaluated by their child.”3
Simply put, your children learn by watching you—and watching you very closely. Modeling good financial habits yourself is, understandably, crucial to their success in picking up positive habits as well. If you don’t already, try to show your children first-hand how you budget, save, and make thoughtful financial choices.
Involve them in everyday financial decisions, like choosing between brands at the grocery store or planning for family outings within a budget. These moments are real-life opportunities for children to see financial decision-making in action.
Tip #2: Use Everyday Moments
Take advantage of everyday activities you and your child engage in to showcase some of your financial lessons. If you’re headed to the store, for example, have them compare prices with you as you shop. Explain why you might choose one product over another, and how cost may influence that final decision.
Encourage them to ask questions anytime, and try to initiate open conversations about money—doing so can also help eliminate the stigma that often surrounds talking about money.
Tip #3: Leverage Helpful Tools and Resources
The great news is, you are certainly not alone when it comes to providing educational content and resources for your children. You’ll find plenty of tools and guides online, through your local library, and even with your advisor that you can use to initiate important conversations about money or share with your kids directly.
Some common apps for helping kids learn basic money concepts include Greenlight Kids, Bankaroo, and Savings Spree.
How Are You Supporting the Next Generation of Financially Savvy Kids?
We believe in the power of integrating financial literacy into your holistic family financial planning services, and we support your efforts to bring financial education to your children’s lives. Whether you’re interested in creating a college savings plan, establishing a trust, or otherwise supporting your child’s future financial needs, we can find opportunities to incorporate your desires into your greater financial plan.
To learn more about how we can help you and your family prepare for a future of financial stability and independence, reach out to our team today.
Sources:
2 Teaching Kids to Manage Money Yields Big Returns, Research Says
3 Adolescence and the Influence of Parents
