Even when your children are very young, it’s not too early to start teaching them about money. The money lessons they learn while growing up will lay a foundation for their financial habits as they get older.
And they’re unlikely to learn many of these lessons in school. According to a survey by GOBankingRates, 76% of respondents said they think high schools are very much lacking in financial education. More than one-quarter said their parents didn’t talk with them about how to manage their money, and almost 20% said their parents didn’t discuss the subject with them very often.
“There are money things that happen at every age, consciously or unconsciously,” said Pam Horack, CFP, known as “Your Financial Mom” at Pathfinder Planning in Lake Wylie, South Carolina. “People come from different backgrounds, and that will be our money script — what they learned from when they were kids,” she said.
Children learn about money from their parents, whether they realize it or not. Being intentional about the money lessons you teach your kids can help them with more than just their finances.
“Understand your kids are watching and listening to you all the time,” said Sam X Renick, a financial educator who created the Sammy Rabbit storybooks and financial literacy program to teach young children about money. “No matter how we feel about it, managing money plays a significant role in advancing, maintaining and growing one’s financial well-being. While money may not be able to buy happiness, the right financial habits can certainly help one avoid a lot of unhappiness.”
The following steps can help you teach your kids about making smart money decisions at every age — whether they’re in preschool and just learning how to count, saving their allowance for a special toy or starting their first job and learning how to budget their paychecks.
Preschool and Elementary School
You can start taking simple steps to teach your kids how to think and feel about money even at the earliest age, said Renick. “Frequently expose young children to words like save, money, goals, plan, spend, earn and work,” he said. “Say the following sentence to your baby with laughter and joy, ‘Mommy or Daddy likes to save money!’ while depositing a penny or two in a transparent glass jar. Shake the jar like a rattle and let out a ‘wohoo!’ Light up the room with joy. Have fun with a purpose.”
As your children start learning how to count, help them identify the coins you deposit into a jar — one penny, two pennies, three pennies, said Renick. “The change is fun,” said Horack. “You can make that into a math game. Learning what money is and what it looks like and feels like — it’s very tactile. Giving your kids any kind of money at that age makes an impact on them.”
She started teaching her kids about money when they would find the change that fell out of their Grandpa’s pockets into the sofa cushions. “My kids would ask to clean out the sofa and I would give them half of what they would find,” said Horack. “That’s what kids remember — their earliest interactions with money. If those interactions are positive, that’s a good thing.”
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How you explain financial decisions, even in passing, can make a difference in your children’s early views towards money. “Kids take their cues from us, how we as parents approach money,” said Horack. For example, if you’re in a store and your child wants a toy you don’t want to buy, it’s easy just to say that you don’t have the money for the toy. “But that’s not what we mean,” she said. “We mean we’re not spending money on that. When kids hear you don’t have the money, they think you must be broke and can’t afford Legos. Tell them not that you can’t afford it, but that it’s not in the budget.” This is a good opportunity to start to teach your children about choices and trade-offs when making decisions about money. “You can explain that we have a budget for things, and it allows us to purchase the things we need, and this is not an item we’re choosing to spend the money on now,” she said.
As they get older, you can start to talk about saving money. “In addition to language, the one money principle you want to begin teaching kids as early as possible is to get in the habit of saving money,” said Renick. They can start by setting aside money from their birthday presents to buy a toy. “Learning to prioritize savings is an education in itself. Saving money teaches delayed gratification and goal setting. It teaches planning, preparation and protecting limited resources. Making a habit of saving money is an extraordinarily valuable behavior. It is the essential ingredient in building, sustaining and growing financial security, stability and freedom throughout one’s life.”
Children can start to learn even more about delayed gratification and savings priorities in middle school. “This is when you start to see the peer pressure around you — other people have this and I want it, too,” said Horack. “In middle school, kids start setting their values about what’s important, and it’s important as parents to start guiding them through the process.”
They can also start to set aside money for larger things over longer time periods — saving their birthday money, their allowance and any money they start to earn from babysitting, lawn mowing or other first jobs.
It’s also a good time for children to start learning about making trade-offs with their money and learning about the value of items they buy. “When you purchase something, you should be asking how long it has taken you to earn the money to purchase that product. Was it worth your time?” said Paul Vasey, founder of CashCrunchGames, which teach kids financial literacy.
In middle school, kids can also start having experience with some key financial concepts, such as calculating compound interest, calculating sales tax and tips and making change from purchases. “Kids should get practice managing and making choices using money, preferably money they have earned themselves, making to-do and shopping lists, organizing receipts, prioritizing and listing wants and needs, reviewing statements — bank, investment, bills, credit card, pay stub — and doing trade-off and pro/con analysis,” said Renick.
The financial goals get larger and the savings opportunities greater as kids reach high school and start to have part-time or summer jobs. They can pay for some of their regular expenses, such as movies or video games, and can also start to save for bigger financial goals, like buying a bike or car, concert tickets or a special trip with friends. You may also give them some financial responsibilities, like paying for gas money or car insurance.
As they start to earn more money, they can learn about budgeting and setting aside their paychecks for several different things at once — which many kids aren’t learning at school. In the GOBankingRates survey, 53% of the respondents wished they would have learned more about budgeting in high school.
When Horack’s kids would get paychecks in high school, she’d have them divide the money into four categories: saving for something they wanted in the next few months or year, investing money they put away for the long term, giving 10% to charity or their church — and then they could spend the rest.
For investing, they set up a custodial brokerage account where they save money for larger goals over the next several years, and they also opened Roth IRAs when they had their first jobs, where they could start to save some money for retirement. They’ll be able to withdraw the Roth IRA earnings tax-free after age 59 ½, and can withdraw the contributions without penalties or taxes at any time. There’s no minimum age requirement to open a Roth IRA — you just have to have some income from working. Your kids can contribute up to the amount they earned from working for the year, with a maximum of $6,000 in 2022. You can give them the money to invest or match their contributions.
This is a good time for kids to start learning about investing. In the GOBankingRates survey, 53% of the respondents said that they wished they would have learned more about investing in school, and 44% said the lack of financial education cost them the most because they avoided investing because they didn’t understand it.
“You can set up a custodial Roth IRA as soon as your kid gets their first job and start putting money in so they can see what happens — there’s $100 here, and in 60 years when they actually retire that $100 is going to be worth a lot more,” said Horack. They can invest in individual stocks or mutual funds, including a target-date fund where investing professionals create a portfolio of mutual funds to match their investments with their time frame. The kids can start learning about investing and see that the stock market go up and down, but they don’t have to take the money out for 60 years, so they can benefit from keeping the money invested over the long term.
This is also when children can start to learn about cost of college. Talk with them about your expectations early in high school, which can help shape their college decisions as the time gets closer. Do you plan to pay a certain amount for college and have your child make up the difference through their savings, scholarships, part-time work and student loans? Do they understand the big difference in costs from college to college? Talk about these issues before they start to visit colleges, so they can factor the costs into their decisions.
Horack’s son just graduated from high school, and when he was a senior she told him, “Your job right now is to find scholarships.” Spending time applying for scholarships can make thousands of dollars of difference in college costs — a much bigger payoff than most student jobs.
When your children go to college, they have to do a lot of financial tasks on their own. Horack says this is often “just in time” financial learning. They’ll need to deal with their own bank account, filling out tax forms if they get a student job, buying books and a computer and paying for extras and entertainment.
It’s also an opportunity to help them learn about some financial decisions that will become even more important after they graduate. If they have a range of choices for off-campus housing after living in the dorms, for example, it’s a good time to talk about costs and trade-offs and what it means for their budget when comparing their options. They’ll learn about the procedure for making rent payments, splitting utilities with roommates and buying groceries.
If you are giving your children money for expenses, it can help to give them a lump sum each semester that they need to learn to budget — and letting them know that they may need to cover some other expenses, such as for entertainment, with their own earnings.
This is also a good time to talk with them about their credit score as they take on bigger responsibilities with their money. “Treat your credit score like your GPA at school,” said Vasey. “Employers ask for your GPA as a way of judging your academic ability. Financial institutions judge you and your credit score with regards to your financial responsibility. Learn the rules to building your credit score.”
This is where all the lessons about money management that your children learned through the years start to come together. “When they get their first job, they’re out on their own and it’s a huge jump,” said Horack.
It’s not too late to continue teaching them some money lessons. Talk about how you pay bills and allocate money from your paycheck for expenses, and the deductions that are taken from your paycheck — including taxes, 401(k) contributions, insurance and other employee benefits. As they’re applying and choosing a job, consider the value of these benefits beyond the salary. “You need to learn how to read your paystub, and there are benefits you have to consider,” said Horack.
This is also the time to start learning about organizing their money. They may have a lot more money coming in than ever before, but they also have a lot more things to spend it on — and new opportunities to help with future savings, too. Even if they don’t create a detailed budget for their spending, they still need to make decisions about the big categories. They’ll need to pay their regular bills, may have to make student loan payments and may also have medium-term goals, such as buying a house or car in a few years.
And don’t forget retirement savings. Even though that might not seem important now, setting aside even a little money starting when they’re young can grow significantly by the time they retire. They’ll need to save so much less to reach the same goals if they start early, and their employer may match their contributions. Don’t miss out on this opportunity.
They may have a 401(k) at work for the first time, which provides tax benefits and makes it easy to save automatically for the future before they can spend the money on anything else. If they don’t have a 401(k), they can set up automatic payments into a traditional or Roth IRA to accomplish a similar goal. “Monthly IRA or 401(k) contributions from your savings account or directly from your paycheck can be a seamless way to build a portfolio and make your money work for you,” said Lindsey Bell, chief markets & money strategist at Ally Bank. They can take advantage of financial education and calculators available from their employer, 401(k) administrator or bank to see how much the money can grow for the future.
Encourage them to automate many of their regular bills, too, so they won’t miss deadlines and they’ll know the money will go there before they have a chance to spend it on anything else. “One of the easiest ways to get organized with your money is to make it an afterthought through automation,” said Bell.
It’s also an important time to talk about debt and the importance of an emergency fund to help them avoid high-interest debt in the future. More than 20% of the GOBankingRates survey participants said that the lack of financial education cost them the most because they’ve paid higher interest rates on loans than they should have, and more than 15% said they’ve taken on debt and don’t know how to pay it off. If they’re making student loan payments, talk with them about the repayment options, how those choices can affect their budget and the long-term impact of the debt.
At this point, they’re also ready to step back and think of their financial priorities and big-picture goals for their money. “Create a written money philosophy that minimally addresses saving, investing, spending, giving, credit and insurance,” said Renick. They can follow this plan for years in the future, which can help them stay on track as they earn more money and need to take on more responsibilities.
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