How to Teach Financial Concepts to Your Kids

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father and daughter showing how to teach financial concepts to your kids
Many states are making efforts to boost financial education opportunities in school curriculums, and seven in 10 public high school students now have access to a course in personal finance. That’s good news, since new longitudinal data from FINRA show that financial knowledge increases an adult’s chances of financial satisfaction, boosts the likelihood of being able to handle an emergency expense, and leads to better retirement planning. The Federal Reserve also found that people who score well on a financial literacy test are more likely to pay their bills on time, have money in an investment account, and own a home. But 73 percent of high-scoring respondents reported that they gained their knowledge from experience. That may be due to the absence of a robust financial curriculum at the time respondents were in school, but it also shows that providing your children with experience saving and spending money may cause them to live more financially responsible adult lives. As a parent, it is your duty to guide your children to make smart financial decisions, which will help them develop healthy money habits for wealthier futures. Start at a young age and follow these tips to nurture your child’s understanding of financial concepts.

Start by Educating Yourself

If you lack money confidence of your own, you stand with 43 percent of adults in the U.S. who are not financially literate. You may need to brush up on your own financial knowledge before you can teach your kids appropriate habits. Start by taking the FINRA financial literacy quiz and identifying the topics you need to learn about. Next, check out the following resources to help you expand your knowledge:

Play Games That Use Money

Teaching your children doesn’t require sitting them down for a lecture. Playing board games that involve money can help kids practice the exchange of money for goods and services and teach them to save up for the things they want. As you play, help your kids strategize when to spend and when to hold onto their cash.

Provide Opportunities to Earn

It’s important for children to understand that money is earned and that it can be saved for a large purchase later on. Give your children opportunities to earn money in exchange for chores or other achievements to show them the relationship between work and money. Physical money kept in a glass jar is helpful for younger children to see their cash accumulate, while digital options such as an allowance app or deposits into a checking account can help older children understand money in the abstract. Wondering how much money to provide? Choose an amount that fits into your budget. On average, families give each child about $30 per week.

Create a Categorized Savings System

Help kids divide their money into buckets for spending, saving, and giving. Set realistic savings goals attached to items they want to purchase in the future, and help them choose a charitable cause that is important to them. When your child enters high school, make sure one of their goals is to save for a college education. You might also incentivize saving and teach compound interest by providing your child with a fixed Annual Percentage Yield on their savings account balance. Or, you might offer to match the amount they deposit into a savings account.

Teach by Example While You Shop

Think out loud when making decisions about what to buy while you’re shopping with your children. For example, show kids the advantages of buying in bulk and finding items on sale. Compare prices from different brands and ask your kids to weigh in on which brand is a better value. Older children can even use a calculator to determine price per ounce when making shopping decisions.

Involve the Whole Family in Large Purchases

Major purchases like buying a house or car can be the perfect opportunity to familiarize your children with the process so they’ll be better equipped to handle major life milestones later on. Even if they’re not old enough to understand APR, you can discuss the concept of borrowing and choosing a home or car you can afford given the monthly payment.

Set Up a Bank Account for Your Kid

One of the best ways to teach your kids money smarts is to give them direct practice with a financial institution. A teen checking account with a debit card can give your child practice using plastic without the risk that they’ll run up a balance beyond what they can afford. When evaluating checking accounts, be aware that many banks charge account maintenance and other fees for teens. However, you may be able to get a free account for your teen at the same institution where you have an adult checking account. Some accounts allow for parental controls and alerts, while others offer mobile banking options that make them more convenient, so decide the features that are important to you before choosing a teen checking account.

Use a Simple Budgeting App

As soon as you get a phone for your child, they’ll be glued to the screen. So why not take advantage of their interest in mobile apps by getting them started with a simple budgeting app? Choose a budgeting app that allows kids to manually input their allowance earnings and expenses so they get practice knowing how much they can afford to spend. Some apps also allow kids to set and track their savings goals.

Add Your Child as an Authorized User

If you have good or excellent credit, you can start building credit for your child by adding them as an authorized user on your credit card account. Even if you think they’re not ready to have access to a credit line, you can add them as an authorized user and keep their card locked away. As long as you pay your bills on time and in-full, you’ll help your child build credit early on. This will give them a leg up when they go to apply for their first credit card, look for a job, rent an apartment, or buy a car.

Show How Money Can Grow

Give your child a basic understanding of APY by involving them in the process of opening a high-yield savings account. Or, if you’d like to keep your kid’s allowance in the home, establish a rate at which you will contribute to your child’s savings. Work with your child to calculate compound interest and set savings goals. Older kids can start learning the basics of investing as well. They won’t be able to open a brokerage account until they turn 18, but you can open and fund a custodial account for them to give them practice selecting stocks. There are also stock simulator games online your teen can use to experiment with fake funds, or you can model building a diversified portfolio by talking through your own investment decisions.

Warn Against the Dangers of Borrowing

College campuses are ripe with credit card companies charging high interest rates to young borrowers, so it’s important to prepare your teenager by teaching them about debt. If you’ve had debt problems of your own, it’s okay to talk about them. It may be uncomfortable, but it can help your teen avoid making the same mistakes. Kids should understand that borrowing is only intended for large and necessary purchases like a house or a car. Everyday needs, emergency expenses, and nonessential goods and services should all be covered with income and savings. Show your child how high-interest borrowing can hurt their finances later down the road. Payday loans are a great example of how debt can quickly spiral out of control, and kids should know to avoid them. You should also warn kids about the potential for property loss with secured loans. Teach your kids about different types of debt, and explain how to access credit without paying interest. A credit card can help you manage cash flow issues, provide convenience, and even give you the chance to earn rewards, but it’s only a beneficial financial tool if you make your monthly payments on-time and in-full.

Utilize Online Resources

Whether you’re short on time or lacking financial literacy skills yourself, there’s a lot your kids can gain from the right online resources. Games, shows, and interactive lessons can give kids hands-on experience with money management. Check out the following sites:
  • Money As You Grow: This resource from the Consumer Financial Protection Bureau features tips and activities for all ages. The site also includes a reading list so you can grow your bookshelf.
  • Money Confident Kids: This learning platform from T. Rowe Price features a series of lessons along with tips for parents
  • Smart Path: This free resource for teachers and parents features a series of Emmy award-winning videos and lesson materials for kids of all ages
  • Banzai: This award-winning financial literacy content platform features interactive curriculum for all ages along with tests that allow you to track your child’s progress
  • Centsables: This site features financial literacy programs for all ages, including adults. Financial literacy games and TV episodes make it fun for kids to learn about a variety of money topics.
  • Bankaroo: This virtual bank for kids teaches budgeting and saving
  • Financial Football: This engaging NFL-themed game was created by Visa in collaboration with the National Football League to teach personal finance skills
  • The Mint: This site features games for kids and tips for teens to manage their money. Topics include earning, saving, spending, owing, investing, and giving.
  • The Stock Market Game: Designed for students in grades 4-12, this online simulation of the stock market is proven to improve academic performance

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