The key to teaching kids about money is making it a part of your life. People don’t just pick up good financial practices; they need to be taught, and it all starts at home. According to financial literacy surveys by the National Foundation for Credit Counseling, the number one source of knowledge for the majority of people is their parents. You can make a significant impact in your child’s life by helping them establish good money habits early and reinforcing them often.
Here are a few key strategies for major age groups. These principles build upon each other to help develop strong personal finance skills for kids that will pay off throughout their lifetime.
Personal Finance for Kids in Preschool and Kindergarten
Play pretend with money. What 4-year-old doesn’t love a good game of pretend store or restaurant? This is an easy way to remind your child that nothing’s free — including that yummy fake ice cream cone.
Take kids to the store. Once they have some practice at the “store,” they can help hand over cash at the real one. Instead of only explaining that a new toy costs $10, gather the bills at home, have your child hold onto it in the car and then they can physically pay for it. That exchange with actual money, not just a card, is important.
Let them participate. Kids this age are all about doing. Let them add money to their piggy bank regularly. It may seem small, but being an active participant makes it even more exciting when they start to see their pile grow.
Money Management for Kids in Elementary School
Make them earn their allowance. Having an allowance teaches children about managing money and helps them experience a bit of financial independence. Whether you want to pay them a set rate or assign values to different chores, having their own money is an important learning opportunity and opens the door to other financial literacy lessons.
Teach the spend-save-share method. By now, your kiddo is probably over the moon when they get $20 from grandma or a birthday gift card. The spend-save-share method models basic budgeting. With your help, children can determine how much money to use for future purchases, current needs/wants and helping others.
Take them to open a bank account. A piggy bank is fine for younger children, but when your children reach elementary school consider opening an account at a bank to help them get comfortable with banks and learn about building up their balance. For older elementary students, it’s also an opportunity to come to terms with the different psychology of using a debit card in a safe environment – it’s much easier to part with than cash and can easily lead to overspending.
Include the whole family in money conversations. One of the best ways to build money management skills for kids is to simply talk about money. Often, finances turn into a taboo topic — and that can follow them into adulthood. Include your children in discussions about budgets, saving for vacation, where to make charitable gifts and more.
Financial Education for Middle Schoolers
Model positive financial decisions. If you upgrade your cars every year or are constantly stressed about your finances, your preteen is watching and learning. What signals are your spending habits sending them: living beyond your means or within them? If you avoid impulse buys, give to charity and save diligently — and share your reasoning — your kid will be better off for it.
Dig into needs versus wants. When your junior high student’s friend has a new phone, pair of shoes or video game console, you’re likely to hear about it. Talk to your child about their needs versus wants — and how they can save up for it. Now’s also a great time to chat about opportunity cost: By spending that $20 now, they’ll need an extra month’s allowance to buy the bigger item they’re saving for.
Give them responsibility. People tend to learn best when they have some skin in the game. Let your middle schooler create the meal plan and do the grocery shopping for the week to teach them how to plan and budget. Allow them to borrow money for a purchase and make payments on their “loan” to teach them about repayment schedules. Help them create a cost list for the pet they want so much – both upfront and ongoing – to teach them about the ongoing financial implications of decisions.
Budgeting Lessons for High Schoolers
Track expenses with a budget. If your teen has a formal job or a babysitting gig, help them set up a simple budget. Start with their income (and go over paycheck basics, like taxes and timing). Then list their expenses, from gas to college savings. Check in every month to review their tracking and how they can improve their budget. Budgeting apps might feel more accessible to your teen; see what they like best.
Open their first credit card. A big part of money management for older kids is setting them up for solo success. These are the lessons they’ll take with them to college. Look into credit cards specifically for students that have no annual fees and small credit limits. Teach your teen the importance of paying the balance off completely every month, and how credit use impacts their credit score (and why that matters).
Talk with them about financial products. High schoolers are learning what it means to be an adult, but many times do not receive concrete financial education about retirement and investment tools that have a significant impact on their lives. Help them understand what it means to have a Roth account, have conversations about how compounding interest can help if they start saving young and share with them the variety of financial tools you use to plan for your future. You can even take them with you to meetings with your financial advisor so they can see what that relationship should look like.
Finance Fundamentals at Any Age
From financial planning to investment building, your Farm Bureau agent or financial advisor can help you move forward with confidence. Request a meeting to discuss your financial future today.