An Age-by-Age Guide to Teaching Kids About Money

In today’s world, many young adults graduate from college with absolutely no idea how to manage their money. It’s important that parents teach their kids about how to save, spend, give, budget, and invest. We can’t expect our children to learn these things without intentionally teaching them from an early age. In this ultimate guide, I have compiled a list of tips for teaching kids of all ages about how to manage their money well for a successful future.

Ages 3–5

At this age, children are learning how to stay focused, listen to directions, accomplish tasks, and grow in basic problem-solving skills. Although you may not be able to teach your child complex financial strategies in the 3-5 age range, you can help form important habits and foundations that will affect their future financial welfare.

1. Set an Example

   

   You are your child’s most influential role model. If you have poor spending habits or argue with your spouse about money, your child will notice. Set a good example whenever you go out to eat, to the store, or pay bills at home, and your child will be more likely to follow your lead when he or she gets older.

2. Take Advantage of Daily Opportunities

   

   If you start teaching your young child with small money moments early on, your child will be much more mindful of money in the future. For example, if you go grocery shopping, give your children a small amount of money, then let them choose a couple of food items to add to the dinner table. Instead of buying a toy, give $5 and help them pick out a toy within that limit, then have them physically hand the money to the cashier. Kids need to learn that things cost money.

3. Use a Clear Jar as a Piggy Bank

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   Giving your kids a clear jar instead of a traditional piggy bank will allow them to see their savings growing. Yesterday, they only had a couple coins, but today they have a dollar bill and twice the coins as the day before! Talk about the importance of saving with your children and be excited when their stockpile begins to grow.

4. Teach Your Child the Art of Waiting

   

   It is important that your child learns the ability to delay gratification. They need to learn that if they really want something, they may need to wait and save to buy it. This is a difficult concept even for adults, so it is a good idea to form habits of patience at a young age. When you go into the store with your child, help them understand that going into a store does not always mean they get to buy something.

Try this: Help your child set a savings goal for something fun. Make sure it’s not too expensive, and help them attain their goal in a reasonable amount of time or your child will get frustrated. This will teach your kids the benefits of saving.

Ages 6–9

In middle childhood, kids begin to relate to and absorb the financial environment around them. During this period, children begin to notice the typical money habits within their family and close community as well as feel the pull of advertising and peer pressure. Parents, however, are still the strongest impact when it comes to influential financial attitudes. This is a very important time to be building healthy money habits.

1. Teach Your Child About Opportunity Cost

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   Opportunity cost simply means showing your child that it is important to weigh spending decisions and that each decision has a consequence. For example, if your child buys this fun game, then they won’t have the money to buy that pair of shoes. Money is in limited supply and we have to make responsible decisions with the money we have.

2. Give Commissions, Not Allowances

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   Do not give your child an allowance for doing nothing. Pay them for small jobs or regular chores they can do around the house such as taking out the garbage, keeping their room clean, or mowing the lawn. It is important that they understand that money is something that is earned, not just given to them.

3. Help Your Child Understand the Importance of Giving

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   Once your child has some money saved up, make sure you teach them about giving. Help them pick a church, charity organization, or someone that they know with needs, and have your child set a certain amount aside for this cause. Sooner or later, your child will see that their giving affects not only the receiver but the giver as well.

4. Check In with Your Child About Their Spending

   

   Ask your child if they saved any money this last year. See if it was easy or hard for your child to save and if he or she feels good about how much was saved. Ask what financial goals they achieved last year and what goals they have for the coming year. Helping your child see what they achieved will help give them the motivation to continue with good money habits. Try not to tell your child what to spend their money on, but help them see if there were any misguided purchases that should be avoided in the future.

Try this: When you are at the store, let your child help you find good deals, and make the most of the money you have to spend. Explain to your child why you bought the cheaper generic version of a product or why buying in bulk will save you money in the long run.

Ages 10–12

At this age, parental reassurance and support are especially important. Tell your son or daughter that you are proud of the responsible money habits they have been forming, and give them confidence in their financial decision-making skills. Peer pressure has more of an influence at this age, and kids will be strongly impacted by the habits and beliefs of their friends. It is good to emphasize the importance of having friends who will affect them in a positive way and will help them continue to grow into responsible adults.

1. Help Your Child Move from Short-Term Goal Setting to Long-Term

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   Encourage your son or daughter to set a long-term goal for something that is more expensive than the usual items they have been purchasing. In this age group, kids do not want to save, they want to spend their money and buy things. It is important in this time to show your child that short-term tradeoffs for long-term goals are worth it in the long run. For example, instead of buying a snack at school every day, your child may decide to save that money for something bigger.

2. Teach Your Child the Difference Between Needs, Wants, and Wishes

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   The distinction between needs, wants, and wishes is important and teaching your child to decipher between these will help him or her make better financial decisions in the future.

3. Introduce the Concept of Compound Interest

   

   Teach your child that the sooner they save, the sooner their money will grow. With compound interest, you make interest on both your savings as well as on the interest your savings have already earned. This compound interest will assist your child even more in attaining his or her long-term goals.

4. Allow Your Children to Open Up Their Own Savings Account

   

   Bring your children to a credit union or bank and let them open up their own account. Many financial institutions have great programs to help kids learn about money and how to use it well. Allowing your son or daughter to have a “real life” savings account may help them feel more accountable to their spending habits and will motivate them to save. Make sure that you do not refuse to let them withdraw money for purchases or this will discourage them from saving at all.

Try this: Go on to Investor.gov and have your child do some compound interest calculations. This will help your son or daughter see how much they’ll earn if they invest a set amount of money and it increases by a set interest rate. This will help them grasp the concept of compound interest and will hopefully give them more motivation to save.

Ages 13–15

At 13-15 years of age, kids want to have more freedom to be independent and make their own decisions. This season is extremely important for solidifying the financial habits and standards they have been working on up until this point as they continue to practice making decisions with their money. New critical thinking skills will help your child make informed decisions, set and strive for future goals, and problem-solve during difficult experiences or complicated tasks.

1. Teach Your Teen How to Budget

   

   Helping your teenager make and keep a budget is essential for preparing him or her to manage money well in college and beyond. Previous financial foundations will flow naturally into the need to budget. You have already taught your teen how to put some money into savings, some into spending, and some into giving, but now it is time to teach them how to hash out a detailed budgeting plan. Help your child make a list of expenses, goals for saving, and how much they want to give. Use this to compare to their average income. What changes need to be made to the budget to make expenses and income line up?

2. Help Your Child Understand the Rewards of Work

   

   By this point in your child’s life, they should be actively seeking ways to earn money through work. They have already been doing small jobs around the house for extra change, but maybe now it is time to give them bigger projects with bigger pay. Help them get connected to a family friend or neighbor who needs work done and is willing to pay your son or daughter to do it.

3. Allow Your Teen to Make Mistakes in Spending

   

   Whether for good or ill, your children will learn from mistakes in spending. It is much better that they make mistakes now while they still have the cushion of Mom and Dad than later on when a mistake could be much more devastating. While it is still helpful to guide your teen, make sure you give them enough freedom that they can exercise the money habits they have been learning.

Try this: Take your teen to themint.org and have him or her explore the different activities and tips offered for teens. Have your teen especially look at the budgeting help section and ask them to create a detailed budget.

Ages 16–18

You only have a couple of years with your teen in the house before he or she is off on their own to make their own financial decisions with much bigger consequences. It is essential that your teen has freedom during this time so that it isn’t such a big transition when they leave for college. During these years, your teenager is experiencing many new financial situations. They are probably working, which means they are earning and managing their own money, opening bank accounts, and applying for credit cards. Help your teen prepare for the responsibilities down the road.

1. Help Your Teen Find a Job

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   During this season, teenagers have lots of free time and could easily fit a job into their schedule. He or she will love the extra income, and it will give them even more money with which to practice responsible saving and spending. Help your child look through available jobs and think through what would be a good fit. The interview process might be a bit intimidating, so help them practice answering interview questions and boost their confidence that they would make a great employee.

2. Teach the Danger of Credit Cards

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   When your son or daughter is out of the house, they will begin to be hounded by credit card salesman, especially when they are in college. It isn’t too early to teach them about the dangers of credit card debt and the ways to use a credit card well. If you do not teach your children why debt is bad, chances are they will become a credit card victim.

3. Compare College Pricing

   

   Comparing college pricing goes hand in hand with budgeting. Look for the “net price calculator” on school websites to see the estimated cost of other expenses besides tuition. Teach your child that a college degree is a worthwhile investment for the future, but we have to make smart choices about what colleges we can afford. Cost is only one of the factors to look at when choosing a school, but it is an important factor to consider.

4. Discuss How Much You Can Afford to Contribute

   

   Be honest with your teenager about what your family can afford to give to put him or her through college. This will help your child be realistic about where they can and should apply. Remember that there are more ways than just your money to finance college. Spend time with your son or daughter looking for grants and scholarships that will help bring the cost down.

Try this: Use the FAFSA4caster tool at fafsa.ed.gov to estimate your financial aid. You can also research additional loans, scholarships, grants, and calculate estimated monthly loan payments on studentaid.ed.gov. Looking at these financial factors will aid in finding out what colleges your child can realistically afford.

Ages 18+

Just because your child is out of the house, it does not mean you no longer have any influence on them. It is true that they are an adult and have a freedom (and responsibility) that they did not have while they were under your roof. Try to find the right balance between letting your child know that they are independent and now make their own decisions, but you are still around for help and support if they need it.

1. Protect Your Child from Credit Card Debt

   

   If your now adult child has not already applied for a credit card, they will probably want to when they are out of the house and may come to you for advice. Make sure to tell your son or daughter that they should use a credit card only if they can fully pay off the balance at the end of the month. The burden of credit card debt is enormous, and it will affect their credit history, which will make it difficult to buy a car or home and potentially even getting a job.

2. Do Not Become a Source of Income for Your Child

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   Constantly taking from the bank of mom and dad is a habit that will be destructive to both parties. Although grace is important and there are times when it is a good idea to step in and help out, too many handouts will leave your adult child unprepared for the future. Your son or daughter needs to learn that there are consequences to their spending habits and mom and dad won’t always be there to bail them out. This is another area where balance is key.

3. Encourage Your Child to Have Emergency Savings

   

   Building up at least 3 months (though 6 to 9 is better) worth of living expenses in case of emergency is a great safety net in today’s economy. Help your child budget so that he or she can save up enough that they have a cushion in case of job loss or unexpected expenses. And teach them how to figure out what is considered a real emergency.

4. Introduce Your Child to Online Money Management Tools

   

   Sites such as MyBankTracker.com, Mint.com, Digit.co, are extremely helpful resources for keeping track of finances. Many of these apps link to a checking account, analyze income and spending, and discover unspent bits of money to be saved for the user. These tools make it easy to budget and some even have alerts when the user has overspent in a certain category.

Try this: Ask your child to look for a credit card with a low-interest rate and no annual fees. Sites like Bankrate, Creditcards.com, and Credit.com can be helpful resources for this.

Did you enjoy this list? I hope that it was as helpful to you as it was to me as I was researching. I want to make sure my kids have a positive start in making wise financial decisions, and I’m sure you do too. Let us know your thoughts about the advice mentioned in the article, and share some of your own tips and activities to help kids learn responsible money management. Don’t forget to share the article if you liked it!