Teaching Money to Kids: The Basics
Think about your own financial knowledge. How did your parents talk about money with you? What financial lessons did you learn the hard way? You may feel that talking to kids about money is uncomfortable. Perhaps you feel unqualified, or don’t want to teach them the wrong ideas. But you are not alone. Nearly half of all parents are somewhat or very reluctant to talk about money with their kids.
But imagine the kind of people you want your children to be. How do they handle their money? Do they have the same habits as you? How will they make major life decisions?
How your child answers these questions in the future will depend on a lot of factors. One of the most important ways you can help your child make the right decisions is to help them be comfortable and competent when talking about money.
Below is a list of the essential conversations to have with your kids, ideas and topics to teach your kids about money (at any age), and some insight into how the parents on the Best Egg team talk to their kids about money.
First, A Financial Pep Talk for Parents
One of the biggest reasons why financial literacy is such a challenge in the US is because it’s not always normal to talk about, let alone talk about with your kids. Here are some of the common reasons why you might be nervous to talk money with your kids, but why you should anyway:
- It’s rude to talk about money.
You may have been taught that it’s rude to talk about money, and perhaps you still hold that notion.
In his book, The Opposite of Spoiled: How to Talk to Kids About Money, personal finance writer Ron Lieber writes that the silence around money can come from several emotions including, modesty, shame, envy, and fear. While these emotions about money are very real for a lot of people, that doesn’t have to be the case for your kids, if you discuss it with care.
- I can’t talk to my kids about money; I barely know what I’m doing.
More than 40% of parents have never had any formal financial education. Wherever you are in your personal finance journey, you still have an opportunity to set your kids on the right path early.
- I don’t want my kids to see how much we’re struggling.
This is a tough one. Letting your kids in on the realities of your finances can feel like taking off the superhero costume.
Personal finance writer Beth Kobliner says that it’s natural that parents may feel nervous talking to kids about their money. However, kids just want to be reassured that everything is going to be okay. They don’t need all the details around your circumstances. Instead, help them understand why you’re having these tough conversations about money and the reasoning behind your good decisions.
- It’s too late to get started.
Dear parent, who may be feeling like the worst parent ever because you haven’t talked to your kids about the inner-workings of your 401(k), do not fret…
while financial experts agree that starting children off early leads to better financial literacy later, arming your kids with the knowledge to make sound financial decisions can come at any age.
The Essentials of Talking to Kids About Money
No matter the age, maturity level, or income bracket, there are a few key elements that financial experts agree are essential to fostering responsible financial behavior in your kids.
Talk Openly About Money
If it isn’t already, make money an open dialogue in your home. “[Money] needs to be part of the day-in, day-out conversation. As money topics come up and your kids are around, talk about them as openly as you feel comfortable,” says money coach Lynne Somerman.
When you’re having conversations with your spouse or others in your family, do not be afraid to include your child in on those discussions.
Examples of opportunities to talk openly with your kids about money include:
- Inviting them in your weekly or monthly budget discussions
- Talking about your bills and walking them through your statements
- Breaking down your inner dialogue about a financial decision you’re making and share it with them
Show How Money is Earned
If you’re comfortable, show your child how you earn money. Many parents encourage their kids to get part-time jobs to teach them the value of a dollar, but parents can also get creative by:
- Inviting them to shadow what you do at work, if possible
- Explaining the details of your paycheck
- Participating in your child’s Career Day activities
- Showing them your investment and retirement plans, and explaining the basics of how you earn that money
Build Saving Habits Early
One of the most important financial habits that kids can start early is saving. Help your child make connections between your savings and the life you want to live. Why did you choose the less expensive car? Why don’t you go on vacation each month? Why does some money in your paycheck go to an account you won’t access until you’re 60?
Here are some ways to talk about saving money with your kids:
- Even if you’re not teaching your child how to create meticulously planned financial goals, show an interest in the things your kid wants and encourage them to save up for it
- Discuss with your child your plans to use your savings on a future down payment for a major purchase
- Show them a savings account statement and talk them through how much interest you’re earning on that money
- When emergencies happen, be open with how you financially deal with the impacts (after things have calmed down)
- If you choose to give allowances, have a discussion with your child about what they could save that money for
Being Charitable If, And When, You Can
Something to always keep in the back of your head is to instill your values about giving with your children. Ideas to engage your child on the ways you give back include:
- Discuss any charitable donations you make and why
- Ask your kid what causes they’re interested in and encourage them to get involved in those causes.
- Take an active approach to your child’s participation in any school or extracurricular fundraisers
- Consider volunteering specifically at local shelters and food banks to help your child understand how different financial circumstances can impact people in their community
Prepare for the Next Phase of their Life
Every major life decision your kid is going to encounter in their young adult life will have a financial impact. When your child starts to make major life choices, you can stay connected! Make sure to talk money with your kid when they are:
- Purchasing their first car
- Deciding on their post-high school plans
- Applying for any loans
- Switching jobs
- Negotiating a salary
- Moving in with a partner and/or getting married
From the Tooth Fairy to Your Empty Nest: Talking to Kids About Finances
Now we’ve addressed some of the common worries in discussing financial topics with kids, it’s time to show you how you can actually broach some of these topics. Below are ideas for activities, lessons, and conversation topics to start having with your kids at different ages.
While not every topic will be relevant to every child at the age it’s categorized in, the sentiment won’t change. Saving, basic math, investing, personal finance essentials, and making responsible choices are important at every age.
Financial Topics & Activities for Kids Aged 3-7
Most financial experts agree that starting financial literacy early is a good idea. In Make Your Kid a Money Genius (Even if You’re Not), personal finance writer Beth Kobliner writes that even at young ages, children can understand the basics behind money concepts. Here are some ideas to help build a foundation of financial literacy in your little ones:
- All about coins: Spend some time with your kid counting coins. Help them understand what different coins and dollar amounts mean, what the value of each is, and use coins as a tool for basic math.
- Feed the piggy bank: Make it a game to find loose change or start offering an allowance early. Having a bank on the shelf that adds up slowly can show how saving their money can add up (even when it’s not earning interest).
- Adopt a plant and take care of it: Consider putting your child in charge of caring for a section in the garden or a houseplant (if you’re particularly adventurous, consider assisting your child in caring for a low maintenance pet like a lizard or turtle). Tending to something every day can help them understand what happens when you care for something over time, like saving and investment habits.
- Needs & Wants: Make saying ‘No’ a part of something bigger. When your child is upset you denied them of something they want, make it a topic of conversation about the differences between a need and a want. You’re not telling your kid ‘No’ because you want to see them upset, you’re telling your kid ‘No’ because it’s simply a want, not a need.
Financial Activities for Kids Aged 7-11
By age 7, children have already formed critical money habits. Additionally, children at this age are already making minor money decisions, so it’s the perfect time to introduce ways to help them build responsible habits.
- Gamify the grocery store: Give your child a small budget and challenge them to buy a list of essentials at the supermarket. Ask them to figure out how to purchase everything on your list each week and still make it work.
- Make art out of their wants: Have your child draw, paint, make a collage (or however they want to express themselves) that illustrates the items they want to have and purchase. Have them start saving specifically for an item in the collage that they can work toward. The lesson here is to plant the seed of delayed gratification. Show them that while it might be tempting to buy something you want on impulse, getting something you truly want after working for it is even better.
- Life is a simulation: Play games with your kids. Simulation games like Sims, Rollercoaster Tycoon, Life, or Monopoly can challenge them to make tough financial choices based on different circumstances, in a low-stakes environment.
Financial Lessons & Activities for Kids Ages 11-13
Being a preteen is tough, but being a parent of a preteen is tougher. Each of these lessons or activities double as ideas to talk to your kids about finances, and opportunities to help them feel older than they are.
- Become junior investors: Challenge your child to ‘invest’ in a stock they’re interested in buying. Give your child an amount, simulate what it would be like to purchase shares. Then have them track their investments’ performance day over day, month over month, how their investment is doing. When something impacts the market, explain to your child how it might impact their investment, and explain what their options might be if they want to re-assess their portfolio.
- Take it to the bank: All that birthday money your kid has been saving? Consider opening a savings account at your financial institution for your kid. Many banks offer starter accounts for children that are in your name, so you’ll have oversight. Other tools like Bankaroo offer virtual bank services built to help children learn about managing money. Work with your kids and show them how to manage their account in the day-to-day.
- Magic doesn’t exist, but compound interest does: If you have a savings account, MMA, or CD that is earning compound interest, take some time to show your child how you’re earning that money and why you chose to put it into the account. Why did you open it? What are you going to use that money for? Walk them through the math that shows them how much money you expect to earn once you cash out.
- Credit cards are not cash: Many credit card companies start allowing kids to become authorized users of credit cards at the age of 13. If you haven’t yet, now is the time to teach your kid the basics of how credit cards work. Why do people use credit cards versus cash? When should you use credit cards? If you add your child as an authorized user on your own card, reinforce these lessons with the rules you set in place with them.
Talking about Finances for Kids Aged 13-16
Starting high school, spending more time on their own, and spending less at home means that your kid will start making independent choices. You can help guide them in making smart decisions, especially with their money, with these topics:
- The value of a dollar: At this age, many young people will make extra money by babysitting or mowing lawns. Even if you’d rather keep your child focused on other things, now is the perfect time to show them what you earn and where it goes. How do you stretch your income? How do you afford the lifestyle you have? Answer these questions for your child.
- Retail responsibly: Next time you’re shopping with your child, have them explain to you what different sales mean, how much sales tax will add to your bill, and how coupons could have helped them save money.
- What debt does: Your child isn’t old enough to have a credit card of his own or apply for a loan, but they will be in a few years. Take some time to show your kids how much money you’re spending on any debt you have in your life and why you have it.
- Make it okay to make (small) mistakes: Personal financial writer Beth Kobliner advises that by the time your kids are teenagers, they should experience a little buyer’s remorse in Make Your Kid a Money Genius (Even if You’re Not). Feeling a little disappointment in something is normal every now and then, so allow your kid to make that impulsive or ill-advised purchase. Then, talk them through why you felt that way.
Financial Topics for Kids Aged 16-18
Your kid is probably chomping at the bit for independence at this age, so make sure they understand the basics behind the financial situations they may encounter:
- Access to their savings: If you’ve set up a savings account for your kid, consider allowing them to take the reigns at this age. Assist them in building monthly savings habits and discuss the reasons why you would dip into your savings.
- The ins and outs of a paycheck: It seems self-explanatory, but if your child has a job, discuss the details of their paystub with them. They’ll likely only care about the deposit amount, but make sure they understand how their earnings are calculated, any taxes pulled out, and any deductions.
- The certainty of taxes: If they earn enough in their part-time job, consider helping them through their first tax filing. Talk them through the concept of taxes and why they may owe money come mid-April.
- Baby’s first credit report: The FTC advises that a child can first access their credit report starting at age 16. Discuss each section of their credit report, and why your credit report is an important tool in keeping track of your credit and identity.
- Retire at age 16: Okay, so your child won’t be retiring at 18, but if they have a part-time job, help them understand their options for saving for retirement. Discuss what your retirement plans are and learn together how you can set them up for success long into the future.
Moving on Up: Talking About Money With Your Kids After They’re 18
As an adult, your child will take all of their responsible financial habits and put them into action. For many, you’re sending your young adult off to college, or waving them off to their first job. However your child decides to kick off their career, there are a few essential conversations you can have with them about money.
- Managing a budget: The single most important piece of advice our Best Egg parents had for their kids at this age was to learn how to create and manage a budget. Instill in them that managing budget is not like riding a bike (Don’t just learn about it once and never revisit the skill). Consider showing them your own budget and help them set up the first versions of their own.
- Young, (Not too) Wild, and Free: Help your kid learn how to budget for their responsibilities and still have fun. Living within your means is essential for a lot of young adults who may not have the income they’d hope for yet. That does not mean however, they can’t still enjoy this time in their lives. Consider sharing how you spent your weekends at their age.
- For the what-ifs: Your kid knows how to save up their birthday money. They may have already spent a part of their savings on something important. Now, educate your kid on the importance of saving for emergencies like job loss, car repairs, and medical bills.
- Understand the impact of debt: If your child is on her way to college or purchasing a car, make sure they understand the true cost of debt before applying for any loan or credit card offer. Help them understand what the terms of their offers mean. Pro Tip: As much as you want to do it for them, encourage your kid to fill out their FAFSAs and loan applications on their own (You can sit right next to them and walk them through it).
From the team:
“The most important lesson at this age is to make a budget and stick to it. It’s so easy but almost nobody actually does it.” – Calvin
“Make sure to budget incidentals, entertainment, and eating out and stick to it.” – Donna
Answers to commonly asked questions about teaching your kids about money
Should you give your kids an allowance?
The question every parent asks: Do I give my kids an allowance? And if I do, do I make them work for it? A 2019 T. Rowe Price study found:
- 51% of parents give their kids an allowance when they earn it
- 17% of parents give their kids allowance without requirements
- 32% of parents don’t give their kids allowance
So, the jury is still out, but a majority of parents do give their kids some kind of allowance. Most of the parents we polled on the Best Egg team give allowance, but have different reasons why they do so:
From the team:
“When my kids were little, they were given money on certain occasions. We didn’t link money to chores because chores were meant to be done by family and were a part of the family responsibility.” – Donna
“I gave allowances to my kids (until they got their own jobs). It was roughly $5-10 a week starting when they were 12ish. Not as a reward or pay for chores.” – Kevin
“We control our kids’ allowances through an app and will drop ‘something special’ as a reward occasionally.” – Sue
Should you encourage your child to get a job, at what age?
Fewer teens are working. Instead, they’re focused on extracurriculars and activities that will prepare them for college. A 2016 Pew Research study reported that less than half of all teens had a summer job. But many parents, including most of the parents we polled on the Best Egg team, argue that working part-time helps build an appreciation for the money they spend.
In her book, Make Your Kid a Money Genius (Even if You’re Not), financial writer Beth Kobliner advises that if your child is going to work, they should limit their time to no more than 15 hours a week at any time of the year. Any more time than that, she argues, has a negative impact on their school, extracurriculars, social life, and wellbeing.
From the team:
“Both my kids were roughly 16 when they started working.” – Jo
“My wife and I are also huge proponents of getting our kids to get jobs ASAP. My 12-year old will be babysitting as soon as she gets certified.” – Matt
What if I don’t know the answer to a question my child asks about money?
You know the feeling: You’re talking to your kid about their day (How was school? How was choir? How are you dealing with that bully?) when they ask you a question that stops you in your tracks. “They’re just curious,” you think. But you’re at a loss for an answer.
This is a major fear all parents have, especially when the question is about money and finances.
In the book, The Opposite of Spoiled: How to Talk to Kids About Money, personal finance writer Ron Lieber suggests that when faced with a question from your kid that you’re not sure how to answer, try asking them, “Why do you ask?” Putting the question back on your child either buys you time to think of an answer, or gets you a better idea of why your child is asking you anyway.
If you still don’t have an answer, don’t be afraid to be honest and tell them you don’t know. Sometimes complex questions about the world and money have answers that shouldn’t be explained in the 8-minute car ride to soccer practice. Perhaps it’s an opportunity to learn about a new financial topic together.
What’s the earliest age you should open a bank account for your child?
There isn’t a consensus for the perfect age to open a bank account for your child, but financial experts agree that once your kid has more money than what their piggy bank can hold, it’s time to put that money in a place that can earn interest.
Many parents opt for a savings account from a bank they already have a relationship with.
From the team:
“I set my son up with a bank account when he was 13 as it coincided with an influx of cash presents from relatives (confirmation and 8th grade graduation).” – Matt
“My kids all have ‘Greenlight’ accounts – and the two preteens actually have debit cards associated with those accounts.” – Sue
“I got my kids their own savings accounts at 16.” – Kevin
Other resources, games, and tools to help talk to your kids about money:
- Financial resources for kids at MoneyConfidentKids.com
- Rich Dad, Poor Dad’s game, CashFlow for Kids
- An app to reward your child for chores, BusyKid
- Simulation Games like SimCity, Monopoly or Life
- Virtual banking tool Bankaroo