How to Start Teaching Your Kids About Money

Understanding how money works is an essential life skill, and knowing how to make your money work for you is just as important. So when do you learn these crucial life skills?

Unfortunately, for a lot of folks, these lessons come later than they should, and often as the result of something going terribly wrong. Not enough people make financial education a priority for children, which results in young adults entering a surprisingly complex financial world without the tools necessary to survive and thrive.

Even if your children are very young, remember that the sooner you start teaching them money and personal finance skills, the more apt they’ll be at applying those skills when the time comes. Here are some tips to help you start teaching your kids about money.

Examine your attitudes about money

One of the most difficult issues parents have to face is step one – examining your own attitudes about money. This is extremely important because your children learn more from what they see you do than from what you tell them. You can preach to your kids every day that “A penny saved is a penny earned,” or that “A fool and his money are soon parted,” but it won’t do any good if they see that you waste your own money consistently.

Consider your relationship with money. Do you make saving a priority? Do you actively budget? What are your goals and priorities?

If you're not currently modeling the kind of behavior you want or expect from your children, start making those changes first.

Communicate openly about money

It is very important to communicate openly with young kids about money, in simple terms that they can comprehend. Too often, young adults have to learn about credit and debt the hard way: by fending for themselves. It’s better that they learn about personal finances under the guidance and tutelage of someone who’s already been there – their parents.

How much you want to share and how transparent you're willing to be is up to you. The important thing is to not treat money like a taboo subject. It's an important part of your day-to-day life. When appropriate, make an effort to share information about family finances.

Use age-appropriate concepts

Your seven year old probably doesn't need to know the ins and outs of a 401(k), so think about how old your kids are when introducing financial concepts.

For toddlers, it's a great idea to introduce the idea of money using play money or games. You can explain to them how money is used to buy things, and maybe even show them how buying one thing may mean you aren't able to buy something else.

When they're a little older, you can introduce math. Earning money is addition and spending money is subtraction. Familiarize them with the different dominations of currency and let them practice counting money or making simple transactions.

Once they reach high school, you can start teaching them about basic banking skills. You may even want to open a checking or savings account for them to provide a place to keep their money and monitor their transactions.

Before they leave for college, make sure they know all about credit: how it works, why it's important, and how it can go wrong.

Let them start managing their own money

Whether you want to give your child an allowance or give them opportunities to earn money through chores or other tasks, giving your children their own money to handle is crucial. Having real money is a great way to teach the relationship between their actions and the positive or negative consequences that follow.

Encourage them to set goals and save money. Help them create a savings jar and praise them when they make progress toward their goals. If they want, encourage them to find additional ways to earn income in order to accelerate or expand their goals. 

Look for practical opportunities to explain money concepts 

Not everything needs to be a planned out lesson. In case, a lot of financial literacy is best explained in the moment.

You can use routine shopping trips as an opportunity to give children a sense of scale when it comes to money, showing them that some things are more expensive than other things. You can also explain to them why you buy the things you do. When a child asks you to buy them something that's a potential opportunity to show how money is finite and that buying one thing means not getting something else.

If you need help changing your own money habits, we're here to help. MMI offers free financial counseling 24/7, online and over the phone. If you have issues with too much debt, too little savings, or an unbalanced budget we're here to support you.