When it comes to teaching children about money—including the importance of saving for the future—it’s smart to start early. And it’s really up to us, the parents, family members, and mentors of the next generation, to drive these points home.
While it may seem a little daunting, building a strong financial foundation for youngsters can start with just a few simple steps. Here are some real-life examples of how you can teach children good money habits. That way, you’ll help ensure they become financially literate teens and adults who understand the value of budgeting and saving.
Leanne Rahn, with Fiduciary Financial Advisors, offers workshops for parents of elementary-age students on successfully educating children on money. “I’m all for encouraging parents to use visuals with their kiddos as much as possible; especially, when we are encouraging kids to work toward goals,” Rahn says. “Goals take time, patience, and determination.’’
What does that look like? It could be using a coloring sheet geared to younger kids where they get to draw as they make progress, Rahn says, or letting middle- and high-school-age teens create a mood or vision board to keep them motivated—the intention is still the same. Using something as a visual cue helps children (and adults) better focus on a goal and see the actual progress they are making, she notes while encouraging them along the way.
Bring Back The Benjamins (and Jacksons)
Children born after the rise of smartphones in 2007 when so many parts of our life have become digital, may only see cash and coins on their birthdays.
“When we can simply press ‘buy now’ and swipe a card to purchase, it can be easy to miss the impact of spending hard-earned money,” says Rahn. “I encourage parents to make their kids pay with cash when possible to feel the power behind handing over what they have been adding to their savings jar/savings account over the past few months.”
Offer Spending Options
When they were tweens and teens, financial planner Tara Unverzagt gave her children options on how their birthday budget—among other things—was spent. “They could have a party or could use it to take a friend to Disneyland,” she says. “Or they could save it to use for something else if celebrating their birthday was a low priority.”
The idea here, she says, is that empowering your kids to make certain financial decisions allows them to learn through experience. “If the choice is a birthday party or no birthday party, who wouldn’t take the birthday party? But if the choice is a birthday party or saving for an iPhone or a gaming system,” she says “there’s some serious thinking to be done.”
Unverzagt, the owner of South Bay Financial Partners in California, also gave her kids clothes, movie, and dance budgets to use as they saw fit, making them pause at least for a week before plunking down money for big-ticket items.
Explain How You Get Paid
With electronic direct deposits and online savings and checking accounts, many of our money transactions are nearly invisible.
“Talk with your kids about the money-related actions you are taking,” says Tim Melia, a certified financial planner who owns Embolden Financial Planning. “The kids do not see us putting cash in the bank. But perhaps at the dinner table, when we are talking about our day, incorporate your money moves.” You can also use time in the car or while waiting at a doctor’s appointment to sneak in financial lessons.
“You can say ‘Today was the first of the month, so my paycheck was deposited directly into our bank account,’” Melia suggests. If you have automatic deductions for monthly IRA contributions, explain those, too. “Kids may not know what an IRA is, so you can explain what it is and why you save for retirement. And they can ask questions,” he suggests.
Begin Budget Talks Early
George Kao, a certified financial planner in Arizona, says he began teaching his children about the importance of budgeting when they were as young as six.
“We started with a basic concept of 10/10/80 (10% tithing, 10% savings, 80% spending). Over time,” he says, “as they got older, we began teaching them how to use budgeting software to control and monitor their spending.”
Kao says he and his family still use a budgeting app: “My kids are almost college-bound, and to this day, they still monitor and budget accordingly with each allowance and/or pay. It’s important to start them young so they understand the basic concepts of good stewardship.”
Make Giving a Priority
Whether it is to a church or synagogue, a charity, or to someone in need, the more we can teach our littles about giving, Rahn says, the more we can create a positive environment around money: “There is something powerful and rewarding about giving and seeing the impact it leaves behind.”
Encouraging kids to share what they have also assists in making the concept of money and what money can do more tangible, she says, adding “I can promise your children’s giving stories will be ones they never forget.”
Where to Save
Tools you can use to help children save are varied—from piggy banks and traditional savings accounts to Custodial Roth IRAs, 529 Plans, plus custodial brokerage accounts and more. Their age and other savings goals are both factors in determining which option is best. Credit union customers—and those who use the SavvyMoney tool—can check out savings account options online or talk to an associate at a local branch.
With reporting by Casandra Andrews