The Ultimate Guide to Teaching Kids About Money

Updated: August 16, 2021
Teaching kids about money is one of those things that's not always covered in school. As parents, here's how you can help educate children about personal finance and managing money.
Teaching Kids About Money

One of the essential skills we as parents can pass down to our children is financial responsibility. But, unfortunately, money management is a difficult skill for many adults to master, so how do we teach kids about money when we’re not even sure if we’re doing it right?

More: How to Teach Kids About Saving Money

Discussing money and personal finance used to be taboo; parents didn’t discuss financial concerns with their children, and children didn’t ask. Unfortunately, that led to many teens and young adults not knowing how to budget, save money, or maintain a good credit score.

According to T. Rowe Price’s 2019 Parents, Kids & Money Survey, 30% of parents are uncomfortable talking to their children about debt and putting aside college savings. In addition, only 35% exhibited confidence in taking care of their own financial needs.

So what’s a parent to do in order to pass down responsible money habits? Fortunately, we’ve done some of the hard work for you. We gathered insight from some financial and educational experts and put together a list of practical money lessons for preschoolers to high school!

1. Discuss Why You Work

Best Egg financial services highlight that you should talk to your kids about why you work. The concept of work and money is exceptionally vague for little ones. They probably do not even understand what a job is; they know you go to work but do not understand what that means. If you have elementary or preschool-aged children talk about how you work to earn the money that pays for everything in your home. When you do your work well, the company gives you money in return.

2. Chores and Allowance

Young children can begin to do household chores in exchange for an allowance; this will drive home the concept of working and contributing to earn money. These chores should be age-appropriate and be extra in addition to their typical responsibilities. Younger children love piggy banks because they can watch the coins add up.For older children or teens use a kid-friendly debit card service such as Greenlight or FamZoo to pay them for their chores.

3. Help Children Understand the Difference Between Wants and Needs

To a child, everything is a need. They need the newest pair of Nike shoes, they need that newly released video game, and they need ice cream and candy from the grocery store.

Natalie Abenhaim, a Community Manager at gohenry, outlines the importance of helping children differentiate between a want and a need. For example, they need food, but they do not need pizza. When your child is spending money they’ve earned or been gifted, discuss things they really want and whether they have enough or need to save more. It is important to help kids understand that sometimes we have to save up for things we want.

4. Play Money

Include play money in your child’s dramatic play area and encourage role-play that involves exchanging money. Fun ways to incorporate money into play include pretending to be a customer at a grocery store or a patron at a restaurant. Early money concepts come from children interacting with money, numbers, and counting.

You can also play money-themed board games, which help them learn about exchanging goods and property for money.

5. Use Cash

Very few of us carry cash around to make purchases. Many of us even have direct deposit, so our paychecks go directly into our bank accounts. To be honest, I am not sure that my younger son has ever been inside a bank. I remember going to the bank with my parents and always getting a lollipop, but I also watched money being exchanged and handled.

When children see physical cash being used, it solidifies that cash and money have value. Craig Everett, a professor of finance, said in an interview with U.S. News, “Using physical cash is much more effective in teaching kids about the value of money. For kids under 8 years of age, coins are the most effective because of the differences in size and weight. Young children really enjoy activities of counting and exchanging coins."

6. Have them Get a Job

Depending on your child’s age, you could have them get a part-time job. A summer job for high schoolers or babysitting gigs during the school year is an excellent way for teens to learn the value of hard work and earning money.

When teens earn $100 from working ten hours at the local book store or mowing lawns, they will spend more cautiously than if grandma gave them $100 as a birthday gift.

7. Open a Bank Account and Set Savings Goals

You can help your child set up a checking account and even a savings account to help them learn about budgeting and to set up savings goals.

Setting up a bank account will also teach your teen about interest, banking fees, and how to monitor their spending and saving. And, even though they are rarely used in most situations, your teen should know how to write a check.

8. Teach Them How Credit Cards Work

My sons are convinced I have unlimited money because of my credit card; even though I almost always use a debit card, it is a plastic card of unlimited money to them. I’ve explained numerous times how the card is connected to my bank account, and if I don’t have money in the bank, the card won’t work; I think my oldest is finally catching on… at least, I hope so!

Credit cards are alluring to teens and young adults because it genuinely seems like you can purchase anything with a swipe. But, unfortunately, when not managed correctly, people can quickly accrue massive credit card debt that can take years to pay off.

If you decide to give your teen a credit card, it is recommended you add them as an authorized user on one of our existing accounts. This will help them build a credit history while giving you access to oversee their spending. Set spending limits with them and teach them how high-interest rates can quickly add up.

9. Allow Them to Make Spending Decisions

While you will probably not include your child in major decisions that affect the family finances, giving them some power over personal spending is an excellent way to teach them about money.

If you are considering a major purchase such as a car or a vacation, you can walk your child through the process of weighing pros and cons, comparison shopping, and sales. Then, when they want to make a purchase with their money, whether it be a LEGO set or a new bike, you can help them go through a similar process.

If you have teens, you can involve them by putting them to work as part of the research process. For example, have them compare hotels, or airline prices, or the cost of switching internet providers.

10. Teach Them How to Build an Emergency Fund

The COVID pandemic saw many Americans scrambling to make ends meet. Many people these days don’t have an emergency fund or even know what one is, and for some, it seems nearly impossible to set aside anything extra. So even if it is $1 a week, have your child start setting money aside in a separate piggy bank or bank account if they are older.

Teaching your child how to build an emergency fund when they are young may save them (and you) down the line. One way to start is by creating boundaries about buying your kids things on demand or that they do not really need. Before you agree to a purchase, consider “How will this affect my life and my financial goals?” A pair of designer sneakers here or $50 to go to the mall there may not seem like much, but over time it adds up.

It can be fun to spoil our children from time to time, but if they learn that mom and dad are ATMs, it will be hard to stop that impulse when they become college students and even working adults. Giving your child money every time they ask doesn’t teach them how to save or care for their own needs.