Help Kids Understand Money With Financial Parenting

Talking about money with anyone can be complicated. Discussing financial literacy with your kids may seem especially daunting, but it doesn’t have to be. Approaching the subject in an age-appropriate way, incorporating financial lessons in everyday life, can help set your kids up for financial well-being.

Here are some helpful strategies for starting the conversation based on your child’s age and maturity level.

Introducing Basic Money Concepts: Pre-K to Second Grade

While it may seem early, helping young children understand the basics of money management can give them an important head start for the future. How should you start?

Teach through play. Act out everyday activities that involve money management, like working, shopping, and paying bills at home. Teach them how to use a toy cash register and “buy” items at their store. Turn a lesson about coins and paper money into a game – rewarding kids with small prizes for identifying them correctly.
Set an example. Include your kids on your next trip to the store or the bank and explain what you’re doing and why you’re taking each step.
Refer to books they love. If a character in your kid’s favorite book is saving up for something special or going shopping, talk about what is happening and whether your child thinks the character is making good decisions.

Looking for more resources? Read our article: How Kids’ Small Actions Can Make a BIG Difference

It’s Elementary: Teaching Kids in Grades Three Through Five

At this age, kids are ready to develop primary financial habits and learn positive behaviors through everyday activities. This is a good time to introduce an allowance when kids complete assigned chores. Here are some tips for financial parenting at this stage:

Learn through experience. Introduce the concept of a small allowance in exchange for the successful completion of chores or assistance with a task.
Get them thinking about goals. Once your kids have earned some allowance, start a conversation about needs versus wants and saving for long-term goals, rather than spending earned money right away. Help kids come up with short-term savings goals, like for a toy that caught their attention, and long-term goals for something more expensive or meaningful – like a bike or a pet. Find specific examples in Become a Super Saver: A Guide for Kids.
Captivate with compound interest. Pose the question: Which is more money, a million dollars today or one penny doubled every day for a month? Then amaze them with the answer – the penny, which becomes $5,368,709.12! You can use this example to explain how saving over time can make a difference. Parents or gaurdians may choose to use examples of savings, investment, or education-related accounts to demonstrate this concept.

Talking to Tweens: Grades Six Through Eight

For middle-schoolers, financial parenting means helping them navigate peer pressure, impulse spending, and needs versus wants. What can you do?

Make the work-wealth connection. On top of an allowance, offer extra money for household chores. You might even consider letting your kid take on a small job, like babysitting or dog-walking for neighbors. If your child shows an entrepreneurial spark, encourage it.
Encourage big-picture thinking. As they begin to earn more money, your middle-schooler can consider more significant future goals, like buying a gaming system, saving for college, or traveling somewhere new. Once a goal is identified, help them plan to save for it.
Introduce some financial tools. Visit your financial institution’s website and explain the different kinds of accounts available and how you use mobile and online banking. This can help children become familiar with common financial concepts and terminology.

Supporting Teens’ Smart Financial Decisions: Grades Nine Through 12

Most teenagers prefer to learn by doing, but they still need your advice and guidance. How can you help your teen build a solid financial foundation?

Assess their natural tendencies. Provide a little freedom to make some financial decisions. Then use a simple budget worksheet to show choices that were good and not so good, based on money from an allowance, a part-time job, or holidays/birthdays. This process can give you an idea of whether they’re a natural saver, spender, or over-spender.
Help them understand account management. If appropriate, parents or guardians can oversee a basic account to help teens learn how deposits, balances, and transactions work.
Consider credit. In some cases, and with close parental oversight, a co-signed credit card may be used as a learning tool to explain credit, responsibility, and the importance of making timely payments.
Take advantage of teachable moments. Explain your teen’s part-time job pay stub. Guide them through the college financial aid and loan application processes. Consider having them contribute to or cover certain expenses, like their phone bill and gas for their car, and guide them through the payment process.

Coaching College Students and Young Adults

Your freshly-minted adults will likely need your advice and shared experiences as they start to navigate the real world on their own. Support them with this guidance:

Live by a budget. Advise them to think in terms of three-month periods, listing their expected and possible expenses. Encourage them to track spending and review together to learn what’s working, what isn’t, and how they can adjust. Encourage good habits, like regularly setting aside a portion of income for savings. Take advantage of our guide to budgeting for college for more tips and resources.
Invest in your goals. Suggest that they start with short-term goals, like buying a car. Then work on longer-term goals, like buying a house. Talk to them about how saving and investing can help them achieve these goals. Review various investment tools and reintroduce the power of compound investing over time. If they’re getting ready for full-time employment, it may also be a good time to introduce concepts such as IRAs, 401k(s), and HSAs. (These examples are for general educational purposes only and are not intended as investment advice.).
Understand the importance of insurance. Use a car purchase, apartment rental, or a doctor’s appointment as your opening to show your young adult how big expenses can be reduced with insurance. Help them comparison shop to find the best rates.
Be resourceful. If they’ve got time in their schedule, consider discussing part-time work or a side hustle to supplement their earnings. Encourage them to explore budget-friendly ways to have fun and how to save money with coupons, discounts, group rates, and more. Suggest that they look for additional grants and scholarships to help fund their education. Give them advice on avoiding potential scams and untrustworthy individuals that could get them in financial trouble.