10 Tips to Raising Financially Literate Kids
As parents, you worry. It’s just part of the job. You ask yourself, “Is my child safe? Happy? Healthy?” But does your child’s financial health also make your list of concerns? Do you wonder about your child’s future ability to handle finances?
No one wants to consider their kids may be dependent on them long after they’re out of school or that they may face mountains of debt. However, these fears could become life-changing realities if parents wait too long to teach their children about managing money.
Some schools are beginning to embrace financial literacy, but who better than parents to teach healthy financial habits and serve as role models for wise money management?
These tasks may seem a challenging, but it’s not as difficult as you might think to teach your kids good financial habits. We’ve gathered important tips from 10 parents who are financial experts, consultants and bloggers, all of whom are raising financially savvy children of their own.
Take a look at what our experts have to say:
1. Start Early
Here’s something many parents don’t realize: Starting early is one of the smartest things you can do to teach children money basics. You might think that money talk will go over your toddler’s head, but research shows that, by age 3, kids already can understand basic financial concepts like value and exchange. What’s more, by age 7, many of the habits that will help kids be smart with money – like the ability to wait and to delay gratification – are set for life.
That’s why these early years are key. Of course, that doesn’t mean you should give up by age 8. Whether your kid is 3 or 23, take advantage of teachable moments in everyday life. Strike up conversations with your kid about the choices we make with money, whether it’s in the checkout line of the grocery store or at the kitchen table when weighing college decisions.
2. Teach Them to Build Credit Now
When it comes to setting your child up for a solid financial future, having a conversation about the role credit will play in their lives is a must. As students turn 18, they become bombarded with credit card offers – and if they are not aware of the pros and cons of credit cards, they can find themselves in debt. Many young people are not aware that credit affects their ability to get a decent interest rate when financing things such as a house, a car or any other major purchase, as well as influencing their car insurance rates.
Now is the best time to become intentional about teaching your children about lending and borrowing. You can give your children loans and have them pay them back by a certain date to get them into the habit of paying their bills on time. And as your children reach middle or high school, go through your credit report with them and use it as a teaching moment.
Sheena Robinson, The Financial Parent Consultant, is a certified financial education instructor, certified life coach, empowerment speaker, entrepreneur, and the author of Financial Parenthood: The Keys to Raising a Rich Kid and Light to Wealth. She is a graduate of Ouachita Baptist University with degrees in Communications and Business, and has been in the financial industry since 2008. Sheena opened Financial Parent Academy Inc, a 501(c)3 nonprofit, and Diva 4 Wealth, both committed to helping others reach financial freedom.
3. Challenge Kids to Cheapen Their Eats
Use grocery shopping to teach kids this important life lesson – when you go to the supermarket, you’re not just pushing your cart through the aisles, you’re wheelin’ and dealin’.
Fact is, home-cooked meals are a big money saver and they’re healthier too, because you have control of the ingredients. Kids can learn how to save money on food by helping you plan a weekly menu around sale items; they can help you load digital coupons on to your grocery store loyalty card. They can learn to become super savers by combining sale items with coupons and stocking the pantry and freezer with bargain buys. You can show them how to use apps, such as ibotta to get rebates on groceries.
Bottom line? Teaching kids how to shop and cook pays off because eating out, including take-out, is one of the most expensive things anyone can blow their budget on when you consider that the cost of one restaurant meal for a family could potentially buy a week’s worth of groceries.
Sandra Gordon is a writer based Weston, CT and mom of two who delivers expert advice and the latest developments in health, medicine, nutrition, parenting and consumer issues for online and print outlets, such as Everydayhealth.com and Your Teen. Visit her at SandraJGordon.com.
4. Set Savings Goals
If there’s something your child desperately wants, like a new pair of Nike sneakers, teach them how to set a savings goal. Offer to match their savings to pay for the “want.” Assign money-making chores or encourage them to increase their babysitting or lawn care tasks to pull in more money. Demonstrating how money must be earned in order to fully finance a want is a wonderful lesson, and your kids may decide all their hard work is worth more than a pair of trendy shoes.
Show your child how to save by sourcing used options. If your son wants that Ninja Turtles backpack or your teenage daughter is requesting designer jeans, show them the less expensive options at consignment shops. They will learn how much more a dollar can buy by scouting used over regular retail. In addition to secondhand stores in your community, introduce sites like ThredUp.com for like-new clothing and accessories at up to 90% savings. This is also a good time to discuss spending and budgeting to help your child understand how to find the items they need within their price point.
Andrea Woroch is a nationally-recognized consumer and money saving expert, writer and TV personality who is passionate about helping Americans find simple solutions to their common financial woes while influencing healthier spending and saving habits.
5. Teach Kids to Delay Gratification
We are working on the financial basics right now with our young son. Our first fundamental lesson is on delaying gratification. We started by limiting his Halloween candy consumption to just one per day. Luckily, he went along with this plan without much protest. He has been to the dentist before, and he doesn’t want any cavities.
Now that he can regulate his own candy consumption, we’re working on delaying gratification for toys. He loves Legos and always wants the latest sets, so we’re teaching him to save up gift money towards purchasing a new set of Legos. This is working well too, and he is learning a valuable skill. Delaying gratification has a lasting impact on everyone’s personal finance. Once you learn to put off gratification, it will be easier to save and invest instead of making impulse purchases.
Joe Udo left his engineering career to become a stay-at-home dad blogger at 38. He has been retired for more than 5 years now, and he is having the time of his life. Joe shares his story on his blog, Retire by 40.
6. Don’t Pay Allowances with Cash
Teaching kids how to use money is important, but it’s even more important to teach kids how to use money in the ways they’ll actually be using it. We live in a world where few people use cash, and most people use debit or credit cards for all of their purchases. Unfortunately, if people don’t have experience managing their money digitally, they can quickly end up spending more than they earn.
Rather than paying your kids an allowance in cash, start a “Bank of Mom and Dad” account. Grab an old checkbook ledger and “deposit” money into the ledger when kids get allowance and “withdraw” money from the account when kids make purchases with their money. You can even pay interest to encourage saving. This helps your children establish the habit of spending responsibly with debit and credit. Hopefully it will help them avoid overdrafting and spending mindlessly with card payments, too.
Lance Cothern is a personal finance expert, freelance writer and founder of MoneyManifesto.com. When he’s not busy helping others master their finances, he can usually be found with his family at the local beach.
7. Practice Positive Communication
When it comes to raising financially literate kids, we believe the best method for financial literacy is positive communication and involvement. We encourage families to sit down and have a weekly or monthly budget meeting. In this meeting, the entire family is involved in asking and answering the questions of, “How did we do on our budget this week or month? Were there things we could improve upon? What were our financial successes?”
This is a safe, positive environment for kids and teens to learn how to respect and appreciate money. We have done this with our children from day 1. We don’t tell them, “You MUST do this with your money!” And now our children are preparing to buy cars with cash, make hefty down payments on houses and working towards educational opportunities that will provide scholarships for school. We haven’t said that they must do any of these things, but because of the years of being a part of our family meetings, they have picked up on these principles and OWNED these goals themselves. They created the goals, and they own them, thus a greater likelihood of having financial well-being from the start when it is their own goal.
Alex and Cassie Michael homeschool their 6 children. They are known as The Thrifty Couple, after paying off over $100K of consumer debt in a short time. They started TheThriftyCouple.com to give encouragement and resources to families to meet their financial goals. Their book “The 2% Rule to Get Debt Free Fast: An Innovative Method To Pay Your Loans Off For Good” was just published, which offers others what they wish they had years ago.
8. Early Budgeting
While kids generally don’t need to worry about expenses, it’s advisable for parents to teach the principles of budgeting early on. Early lessons should involve the basics of income (such as an allowance) and expense (how much is regularly spent on indulgences like candy, toys, or games). Whenever your children have grasped the principles of addition and subtraction, spend some time showing them how to create a simple income vs. expense sheet.
Encourage your children to keep track of receipts and record expenses on an ongoing basis, while also mapping out their income and planning for weeks when they won’t be earning an allowance (due to family travel, etc.). Not only will this engender fiscal responsibility by curbing unwise spending, but it will show your kids the real life value of math skills and the true value of money.
Also, be sure to talk to them regularly about their budgeting process, sharing with them the value of saving money for future expenses – you can offer personal success stories as examples – and how they can increase their income by creating their own “side hustles” like mowing yards, shoveling snow, or helping neighbors.
Jeff Steen is the Associate Editor of EarlytoRise.com. Previously, he worked in food and hospitality journalism, but is currently focused on bringing unique, insightful content to the ETR world.
9. Share Your Thought Process on Prioritizing
If you want your kids to learn how to manage money, it’s best to lead by example. To bring the point home, make sure you talk about your money thought process with your kids.
When we took our kids to Disney World, we talked with them about how much a ticket cost and about how much our hotel and travel cost. We explained why taking them to Disney was important to us and why we felt it was worth spending the money to get them there. Then, we put everything in perspective of the things that we chose not to buy so we could have the money saved up for the trip.
Now, when our kids ask if we can buy them something, they understand that our answer is a matter of prioritizing. It’s about deciding whether that purchase is more important than the other ones we want or need to make instead.
Chris Durheim and his wife Jaime write at Keep Thrifty, with a goal of helping people think differently about money so they can pursue their passions.
10. Say No the Right Way
It can be hard as a parent to say ‘no,’ but it is important for them to hear the ‘no’ and understand that it comes from a place of love. So how can we do this with integrity?
In order to raise financially literate kids you need to remove the emotion. However much you may feel upset that you can’t give them what they want or what you’d like them to have, such as a new smartphone or membership of a sports club, athletics coaching or a holiday perhaps, they need to learn that your expenses need to be budgeted. They need to understand if you find money for this, then other things will have to be sacrificed to find that money, or more money needs to be found by earning it. It is important to do this from a calm place where you don’t shout ‘No!’ and get upset or angry, but instead talk through the different aspects of the matter, so they get the learning and the love.
- Listen and determine what value this item holds for them. Weigh up the advantages and disadvantages. Pause before responding.
- Ask them to research the best deal.
- Discuss how you/they will pay for it. Can they contribute, or defer purchase?