Today, more than ever, teaching children about money early on is crucial for their future financial well-being. As financial advisors, we understand the importance of starting these conversations early and integrating them into everyday life.
Below, we explore practical tips and strategies for parents to instill healthy financial habits in their children, from preschool through young adulthood, so that by the time they are adults, they have the tools and knowledge necessary to be financially responsible.
Preschool Years: Laying the Foundation
According to the University of Cambridge¹, money habits are typically formed early in childhood. Kids establish their attitudes towards spending and saving by age seven! During the preschool years, children can begin grasping basic money concepts through hands-on experiences.
Here are some effective strategies to start introducing the topic:
Needs vs. Wants: Kids as young as four have the capacity to decide when they “want” something. Teach children to differentiate between needs (essential items) and wants (non-essential items) when making purchasing decisions. For example, when shopping, discuss whether a toy is a want or a need. These concepts provide excellent discussion points on your trips to the grocery store or the mall.
Discuss the concept of buying things: Anytime your child expresses a desire for a toy or something they don’t need, you can use the opportunity to discuss why you are or are not going to buy it.
Buy a toy cash register, assign values to their toys, and have your children buy them back from you using play money. This will help them learn the association between how much money is needed to purchase things.
Hands-On Experience: Use real money (coins and bills) to teach children about its value. Have them count your change. Practice buying toys or snacks at the grocery store using physical cash to illustrate the concept of spending – a hard concept to grasp in today’s digital world.
Practice Delayed Gratification: Be mindful of how you discuss purchases around your children. For example, have conversations at the grocery store where you compare the cost of two items and decide which item makes the most sense to buy. Then praise self-control when one of you decides not to buy – let’s say a snack, for example – and instead spends that money on a more practical purchase (or not spend at all!). You can also model your own self-control. For example, at the mall, say something like, “I’d really love to buy these shoes, but I am going to hold off since Dad and I are saving for a washing machine.”
Busy Bee Literacy² curated a list of the best money-conscious books by age group aimed at building financial fitness. The following list of books is a good place to start with your preschoolers.
Pre-School Reading List
- Sheep in a Shop by Nancy Shaw
- One Cent, Two Cent, Old Cent, New Cent by Bonnie Worth
- The Penny Pot (part of the Math State series) by Stuart J Murphy
- Bunny Money by Rosemary Wells
Elementary to Middle School: Building Responsibility
As children grow older, they can assume more responsibility and grasp financial concepts:
Allowance and Chores: Establishing an allowance system tied to age-appropriate chores helps children learn the value of earning money through work and responsibility.
Three Jar System: Introduce the concept of three jars labeled “SPEND,” “SAVE,” and “GIVE.” This strategy helps children understand the importance of budgeting, saving for the future, and giving to others. Encourage them to keep the change from their shopping trips to add to their jars.
Play a friendly game of Monopoly or PayDay®.
After a few years of handling real money and saving it in a fun way, give your child a bit more independence – an important step in learning money management.
Bank Accounts: Open a youth savings account together. Visiting a physical bank can help children understand how banks work and where their money is stored.
Online Banking: As an alternative to opening a bank account, online banking can have just as much impact on children. It allows kids the ability to view their balances, deposits, and withdrawals online. ChaseFirst, GoHenry and Greenlight are good debit card options for young kids. They are simple and allow kids to do everything easily online.
Smart Shopping: Teach children to compare prices, look for quality, and avoid impulsive purchases, especially during trends or fads.
Budgets: Some families begin giving larger allowances to their children around middle school so that their children can be responsible for their own clothing, food, and entertainment expenses. This approach may only be a good fit for a more mature child, but they will ultimately gain a tremendous financial education from doing it. A less extreme way to give your child money responsibility at this age is to give them money at the beginning of a vacation to use on a souvenir of their choice. Try to keep your personal judgment out of the selection.
Want some books to help support these concepts? Check out the following:
Elementary School Reading List
- Lemonade in Winter: A Book About Two Kids Counting Money by Emily Jenkins
- You Can’t Buy a Dinosaur with a Dime by Harriet Ziefert
- If You Made a Million by David Schwartz
- A Chair for My Mother by Vera Williams
Middle School Reading List
- The Lemonade War by Jacqueline Davies
- Lawn Boy by Gary Paulson
- Lunch Money by Andrew Clements
- Annie’s Adventure by Lauren Baratz
High School Years: Developing Financial Independence
During high school, children should be prepared to manage more complex financial decisions.
Financial Discussions: Involve teenagers in family financial discussions, such as budgeting for vacations, saving for college, and understanding household expenses.
Part-Time Jobs: Encourage teenagers to get part-time jobs to earn money. Discuss the importance of saving and budgeting their earnings for short-term and long-term goals. The three-jar or envelope system they used when they were younger can also work here! Employment presents a valuable opportunity for teenagers to acquire essential financial skills that can have a lasting impact throughout their lives.
Introduction to Investing: Introduce the concept of investing and explain how it can help grow money over time. Consider opening a custodial investment account to start investing early. Or, if your teenager has earned income, they may be eligible to contribute to a Roth IRA.
Want some books to help support these concepts? Check out the following:
High School Reading List
- M.G.: Official Money Guide for Teenagers by Susan & Michael Beachman
- The Motley Fool Investment Guide for Teens by David and Tom Gardner
- The Millionaire Next Door by Thomas J. Stanley & William D. Danko
- Moneyball: The Art of Winning an Unfair Game by Michael Lewis
Young Adults: Transitioning into Financial Independence
As young adults enter the workforce or college, they should continue to build on their financial knowledge.
Budgeting and Saving: Help young adults create a budget, manage expenses, and save for emergencies and future goals. Encourage them to save 3-6 months of expenses as an emergency fund.
Understanding Credit: Discuss the importance of credit scores, responsible credit card use, and avoiding debt accumulation.
Long-Term Financial Planning: Encourage contributing to retirement accounts like a 401(k) and starting a Roth IRA for long-term savings and investment growth.
Encourage your young adult to subscribe to HTG’s Financial Foundations, an educational platform that answers a wide variety of financial questions and simplifies complex topics.
Want some books to help support these concepts? Check out the following:
Young Adult Reading List
- The Defining Decade: Why Your Twenties Matter – And How to Make the Most of Them Now by Meg Jay
- Get a Financial Life; Personal Finance in Your Twenties and Thirties by Beth Kobliner
- The Wealthy Barber by Daniel Chilton
- Why Didn’t They Teach Me This in School? by Cary Siegel
Teaching children about money isn’t just about dollars and cents—it’s about instilling values, critical thinking, and responsibility. It is an ongoing process that evolves as children grow older and face new financial challenges. Starting early and progressively adding financial concepts into everyday life equips children with essential skills for their financial futures. By integrating these strategies into everyday life, parents can empower their children to make informed financial decisions from a young age. Whether it’s through simple exercises with cash registers or more complex discussions about college savings, each step builds a foundation of financial literacy that lasts a lifetime.
Start early, be consistent, and lead by example to set your children on the path to financial success.
Remember, the lessons children learn about money today will shape their financial habits and attitudes for a lifetime.
¹ David Whitebread and Sue Bingham, “Habit Formation and Learning in Young Children,” University of Cambridge
² https://www.benjamintalks.com/thevault/busy-bee-literacy-x-benjamin-talks