Learning how to manage money, like learning how to read, is a skill that everyone needs. And that’s one reason why it’s important for children to learn about money from early on.
Financial literacy is strongly linked to positive financial outcomes, according to a recent study by the Financial Industry Regulatory’s (FINRA) Investor Education Foundation. But many children don’t receive a financial education at all. Instead, they learn about earning money, saving, investing and spending from their own experiences.
Lack of financial literacy education in schools means that many parents must take matters into their own hands. Taking the initiative to teach your kids about money can better prepare them for the financial realities they’ll face as adults.
When should you start talking to your kids about money?
It’s never too early to start teaching children about money. In fact, they’ll likely pick up on your cues whether you set out to teach them or not—so start setting a good example early.
Kids are good at noticing how you feel, so consider what emotions you want to project around money. If you experience a lot of anxiety around money, they’ll notice, and they’ll make that association. If you approach money matters calmly and confidently, they’ll pick up on that, too, and hopefully use the same approach as they get older.
The words you use to talk about money also matter. For example, avoid using words like “broke.” Instead of saying you “can’t afford” something, try saying, it’s “not in our budget.”
Direct money lessons can be taught even to young children. Use coins to help them learn the value of money and different ways to count it. If you take your child with you to the grocery store, tell them how much each item costs as you put it in the cart. Or consider recreating a shopping experience at home, using coins and household items.
How to introduce kids to saving
A piggy bank is a classic first tool for saving, but your child may learn more effectively if they divide their savings according to a few simple categories. Give this a try: help them label four different jars with Needs, Wants, Goals and Causes. When they receive money for their birthday or from an allowance, encourage them to divide it among the four jars, considering which among them are most important.
This method is a great way to teach your kids the difference between wants and needs. For a child, a Want might be candy or a toy, while a Need might be something necessary for school or a sport. The Goals jar, meanwhile, is for things they want months or even years in the future, such as a new bike. And the Causes jar encourages children to set aside money for gifts, or for a charity of their choosing.
Conversations around the dinner table are another great way to start teaching your kids about saving. Even if it’s just once a year—during Thanksgiving weekend, for example—try having a discussion with the entire family about savings goals for the following weeks, months, and years. This is also a good time to discuss any charitable gifts you’re planning to make. Including your children in this conversation will demonstrate the value of planning and giving, and help them feel involved in the family decision-making process.
How to teach your kids about earning money
Teaching your kids about chores can help give them a sense of responsibility, pride, and self-confidence. Depending on their ages, kids can do dishes, take out the trash, vacuum, mow the lawn, and help out with many other household upkeep activities. Consider creating a weekly chore chart to help your kids understand which chores are expected of them.
When you tie an allowance to these chores, you can teach your kids a valuable lesson about earning money. In most cases, children don’t see their parents working all day, so it can be easy for them to imagine that money is a resource that has no connection to any particular activity. Teach them that money comes from work, and treat their allowance as payment for the chores they do each week.
You might also consider giving your kids extra allowance money if they practice good savings habits consistently. This practice can help reinforce the value of saving.
Establishing money management
You can introduce young children to money and debt management by teaching them how to create a budget. One way to do this is to budget for an activity to do together, like a picnic. Explain to your child that you have a set amount of money to spend on the picnic and create a list of all the items you want to buy. This will help teach your child that you might not be able to afford everything you want under the budget you’ve set, and to prioritize certain items above others.
When your children are older, you can start including them in family budget discussions. This is an excellent setting for children to start learning about the various recurring bills you pay, and the money you set aside for regular expenses like food and gas.
Preparing for the long-term with a custodial account
Consider setting up a custodial account for your kids to help them save and invest while earning interest. All transactions will have to be approved by you, so your child can’t make investment decisions or withdraw money without your go-ahead. Take this opportunity to introduce your child to the concept of compound interest and its power to help them build wealth over time. Note: When children reach the age of majority, they get full legal control of the custodial account. The age of majority can vary by state.
With Stash+1, you can open two custodial accounts for your kids2, with a minimum deposit of only $1.00. You can use Stash to show your kids how to save for their goals and invest their money.3
How to set up a custodial account with Stash
If you’re ready to teach your child more about saving and investing, consider opening a Stash custodial account. Choose how much you want to invest, starting with as little as $5, and simplify investing by making automatic contributions.