You teach your children how to brush their teeth, be polite to grownups and other habits that can set them up for success in life. But what are you teaching them about money? Kids overwhelmingly cite parents as their most trusted source of financial information, according to a 2022 T. Rowe Price survey. However, the same survey found that 57% of parents are reluctant to talk about money with their children. Educating your children about money, budgeting and saving prepares them to make smart decisions as they get older. Here are 14 tips for talking to your kids about money.
1. Start the Conversation Early
Age 3 to 5 is old enough to start learning about money. Begin by:
- Explaining that money is used to buy things: Differentiate between things that cost money (such as a trip to the zoo) and things that are free (such as watching the birds at the park).
- Teaching the value of coins and bills: Young children benefit from concrete items they can see and touch. Have your child count out 25 cents' worth of nickels, for example, or put coins in order of value.
- Discussing how people earn money: This includes working at a job, owning a business or selling things online.
2. Give Them an Allowance
An allowance lets children put theory into practice and decide how to spend or save their money. You can also use play money, such as letting children earn "family dollars" they can redeem for treats, toys or an experience like going to a movie.
3. Teach Budgeting
Elementary school age children are ready to learn about budgeting. Tell them your family has a certain amount of money to spend each month and examples of what it needs to buy. Illustrate this with things children understand, such as food, gas for the car, rent, cellphones and electricity to keep the lights on.
Discuss the difference between needs and wants and ask your child to categorize family expenses this way. Rent and groceries are needs; toys are wants.
Explain the importance of living within your means and not spending more money than you earn. Talk about the tradeoffs this requires; for example, if you spend your whole allowance on candy, you can't buy a toy.
Once children are earning money, have them build their own budgets. Zero-based budgeting is a good way to start.
4. Help Children Set Money Goals
Even young children can understand financial goals. Talk about how delaying gratification helps achieve money goals. Help your children set goals, such as:
- Elementary school or younger: buying a video game or toy
- High school: going to the prom, buying a car or paying for college
- College: traveling with friends or getting their own apartment
You can also talk about family financial goals, such as buying a new car, taking a family vacation or getting a pet.
5. Discuss the Importance of Saving
Explain that savings accounts help the family pay for things such as a vacation or a new car. Help kids determine the cost of their financial goals and how long it will take to reach them. For instance, a child who gets a $5 allowance weekly and wants a $60 video game could save their entire allowance for 12 weeks or save half of it for 24 weeks.
Discuss how savings can help families pay for unexpected expenses, like car repairs or taking a sick pet to the vet.
Young kids getting cash allowances can save with a piggy bank; consider opening a savings account for older children.
6. Talk About Giving
Tithing or donating to charity is important to many families. Children naturally understand the idea of giving. Consider suggesting your child give a percentage of their allowance or earnings to a charity they choose.
7. Look for Everyday Teaching Opportunities
Use everyday activities to teach money lessons. For instance:
- Give children a snack budget at the grocery store and show them how choosing less expensive items stretches their budget.
- Discuss the cost of menu items when you go out to eat. How much do extras like drinks and dessert add to restaurant meals? Is the "value meal" at the drive-thru really a good value?
- Have children look for the lowest gas prices as you drive around town.
8. Suggest Ways to Earn Money
Give children the chance to earn money by doing extra chores, such as washing the car or mowing the lawn. Suggest ways older kids can earn money outside the family, such as babysitting, walking dogs or tutoring younger children.
9. Discuss Debt and Credit
Children often believe credit cards are free money. Explain that, while debit cards are like paying cash (they take money directly out of your bank account), credit cards are a type of debt. Explain that credit card debt must be paid back, and you may have to pay extra (such as interest or fines) if you don't pay what you owe on time.
As children get older, you can introduce other types of debt, such as loans to buy a house or car. Explain that you got money from the bank to purchase these things and are paying it back over time.
Buy now, pay later (BNPL) plans such as Klarna, Afterpay and Affirm are common payment options on shopping sites teens frequent. While these payment options offer alternatives for teens without credit cards, make sure your kids understand the risk of high interest rates and penalties if payments aren't made on time.
10. Share Resources for Learning More
Four in 10 children aged 11 to 14 get advice about money from social media, primarily YouTube, T. Rowe Price reports. Ask your children if they're learning about money online; if so, check out the sources.
Try these financial games and resources for children:
Get more ideas from these resources for parents:
11. Keep It Positive
Children absorb your attitudes, so keep your money discussions upbeat. Maintain a "can-do" attitude, emphasizing that there's always a way to reach your financial goals. To avoid worrying children, don't reveal too much of your financial situation, and put a positive spin on things. If you've had a pay cut, you could say, "Mommy's paycheck is smaller than last year. We can still pay for everything we need, but we'll adjust our budget. That means we might eat out less often and cook more at home."
12. Help Them Practice
Use a debit or credit card as "training wheels" to help kids practice what they've learned about money. Many banks and credit unions offer debit cards for children; so do apps such as BusyKid and Greenlight.
Teens can be authorized users on your credit card. Have them learn good credit habits by making their own payments.
13. Warn About Money Scams
Educate kids about the warning signs of online shopping scams, cash app scams and other financial fraud. Remind them to buy only from legitimate shopping sites, not via links on social media, texts or emails.
14. Model Good Financial Behavior
"Do as I say, not as I do" rarely works with children, and finances are no exception. Set a good example for your kids by staying on top of your spending, regularly revisiting your budget, setting financial goals, and putting aside savings for goals and emergencies.
The Bottom Line
Protecting your child's identity is critical to their financial health. Request a copy of a minor's credit report from each of the three consumer credit bureaus (Experian, TransUnion and Equifax). Typically, kids don't have credit reports; finding one could mean your child's identity has been stolen. For additional peace of mind, sign up for Experian's family identity theft protection; it covers two adults and up to 10 children.