This is extremely valuable in helping kids understand that savings is about more than just delayed gratification. It's about turning a smaller amount of money today into a much larger quantity later.There’s no better way to teach your kids finance than to get them involved in your own decisions. Explaining to them how you think about and use your money is the first part of making them financially independent. Here are some of our best tips to teach money management to kids.
5 Ways to Involve Your Kids in Money Management
Involving your kids in money management is as much about showing them what to do with money as it is about teaching them how to think about it. Getting the whole family involved will help you meet financial goals as a family. That means when your kids grow up, they’ll feel more confident handling their own finances.
Here are five ways you can approach money management for kids.
1. Talk to Your Kids About Money
It’s important to talk about money with our kids as early as preschool. After all, having open discussions about money is the first part of introducing your kids to money management. “When you talk about tradeoff decisions and your family’s savings goals — like saving for a vacation, emergencies, or college — you should share this info with your kids,” says Natalie Taylor, CFP.
Whether you’re teaching preschoolers about money or trying to educate high schoolers, let them build familiarity and contribute their own input. Based on their maturity level, communicate how you make financial decisions. This can mean explaining that buying one thing may mean not buying another, or that choosing to save may mean choosing not to buy something.
What to say: “We’re saving for a vacation! Do you want to budget for activities?”
How it helps: You’ll get your kids involved with saving and budgeting for your financial goal. You’ll also educate them about the cost of vacations.
2. Use Percentages to Describe How the Family Spends Money
Money can be a sensitive subject. Laying out how much you get paid could make your younger kids’ eyes glaze over or make your teenager drool. Younger kids also tend to have a warped view of the true cost of things. That kind of understanding is hard to fast-track and comes only with age.
It’s best to wait until your kids build that understanding before you introduce real numbers. When you’re talking to kids about money, also be careful not to intimidate them with calculations. Instead, use percentages to include them without overwhelming them.
What to say: “Here’s where our paychecks go: 25% goes to taxes, 5% to health insurance, 10% to retirement, 5% to charity, and the rest goes to our expenses.”
How it helps: By breaking down your budget like this, you’ll teach them how a budget looks without getting into specific dollar amounts.
3. Teach Your Kids About Taxes During Tax Season
It’s important to teach your kids about taxes, but it’s a complex topic, so start small. “Share with your kids what taxes are,” says Taylor. “Explain that income taxes are a portion of your money that goes to the government to pay for things like schools, roads, and firefighters.”
You can also explain that almost everyone files their taxes at the beginning of the year, and if they’ve paid too much, they can get a refund.
What to say: “Income taxes are a part of living in America. They keep our roads in order and pay for public services, like schools and firefighters.”
How it helps: Talking about taxes frames a complicated (and often political) topic in a way kids can understand. It leaves out a lot of the baggage around taxes and can make kids feel that, by paying taxes, their parents are contributing to the community.
4. Match Your Kids’ Savings
A big part of teaching money management to kids is saving. While saving may not be as exciting as spending, showing your kids the value of financial security and delayed gratification is important. But it doesn’t have to bore them to tears. There are a few ways you can make it exciting.
“Consider a family matching plan for your child’s savings goal,” says Taylor. “You can set it up the same way an employer matches 401(k) contributions.” Say your child wants to save for a $250 mountain bike. You could agree to match them dollar-for-dollar as a motivational tool. Use this also as an opportunity to teach them about sales tax.
Grow Their Savings
One thing kids (and most adults) don’t innately understand is the time value of money and the way savings grow over time.
Beyond matching their savings, you can also show them how savings grow with interest or investment. You can either explain this or teach it by example. To do this, consider giving your kids an artificial — and possibly artificially high — interest rate on their savings.
What to say: “You want a new bike? For every dollar you save for your bike, I’ll match it with one dollar.”
How it helps: Matching savings is a huge motivational tool. Saving a large chunk of money for something they want can feel daunting for a kid. By saying you’ll match their savings, you’re letting them know you have their back while pushing them to commit to their goal.
5. Teach Your Kids to Give
When you talk to your kids about money, you’re also talking about what your family values. For many families, charitable giving is part of that. This could be donating money to an organization or volunteering for a cause they’re passionate about. By teaching your kids to give, you’re showing them that money management means using money to make an impact.
“Consider creating an informal family foundation once your kids are five or older,” Taylor says. “Schedule a family giving meeting and ask your children to present a charity that they’d like to support this year. The charity could be a zoo, animal shelter, a local arts program — whatever they care about. You can help them research and have them present it at the meeting, then let them write a check from the family.”
What to say: “Where would you like to give and how can we help?”
How it helps: Family giving shares the value of giving with your child and involves them in the decision-making process.
Let Your Kids Experiment with Their Money
As parents, it can be hard to watch your kids make a mistake. But mistakes can be a powerful learning tool when it comes to money management for kids. Allowing your children to spend their money (within reason) lets them understand buyer’s remorse in a secure environment.
For example, say your 9-year-old has been saving money for a specific Lego set, but when they’re at the store with you, another toy catches their eye. They know they want it, and they have the money for it, but it would wipe out their Lego savings. You suspect it’s an impulsive purchase, but you let them make it anyway.
After a few days, they don’t seem interested in the toy anymore. Through talking with them, you get the feeling they regret buying it. This is your opportunity to speak with them about impulsivity, buyer's remorse, and making decisions on how to spend money.
Keep It Positive
Your attitude toward money will rub off on your kids. One classic example is the phrase “We don’t have the money for that.” Many times, what this actually means is, “We’re going to choose to use our money elsewhere,” but your children can hear it as scarcity.
As a result, they’ll absorb the feeling that money is tight. That’s why, when teaching money management to kids, keep your approach positive. Focus on how they can use money to accomplish goals and make ends meet. Even if money is tight, you shouldn’t convey to your kids that you don’t have enough. Instead, teach them to focus on priorities.
Instilling the idea that money is a tool to be deployed for your own goals and not a limiting factor on your life is likely to foster a much better relationship with money in children.
Money management for kids should be simple. You need to talk to your kids about money in a way that matches their maturity level. This means describing trade-off decisions, family financial goals, and family income in ways they’ll understand.
By getting the whole family involved in your financial life, you’ll teach, engage, and motivate your kids. Consider approaches that encourage them, like by matching their savings or having them research a charity to give to. Most importantly, give them a safe, positive space to learn about money management.