Kids are never too young to learn about money and how to manage it responsibly. This blog advocates customizing money messages to children’s ages and interests and will give you some suggestions for teaching young children, grade schoolers, tweens and adolescents about managing money. For example, four-year-olds usually can understand the difference between needs and wants, while high schoolers may be ready to handle a credit card.

Small Lessons for Young Children

Research has found that the earlier you start a child’s financial education process, the better three- and four-year-olds can begin grasping concepts, such as the difference between needs and wants or that you cannot buy everything that you see. If your child asks about your job and why you go to work, explain the relationship between work and money.

A trip to the supermarket can also provide teachable moments. Point out how different products cost different amounts and why. Also, talk about when it might be worth spending more on an item and when a lower-cost version will suffice.

You should introduce them to coins and cash. Explain what money is and how it is used. Showing them how money actually works is more effective, so let them see you making purchases with cash.

Teaching Good Habits Around Saving Money

Your children’s early interactions with money will likely involve spending. They see you using money to purchase things, including things for them. So it is important to teach them from a young age that money is not just for spending—they should be saving money regularly, too.

Learning to save is not just an essential money habit. “Saving teaches discipline and delayed gratification,” Sam X Renick, founder of sammyrabbit.com, says. “Saving teaches goal setting and planning. Saving stresses being prepared. Saving builds security and independence.” Help your kids get in the habit of saving by giving them a piggy bank or savings jar where they can deposit coins or cash. Then use short, simple messages to encourage your kids. Renick offers these examples:

• Saving is a great habit.
• I love to save.
• It feels good to save money and build my future.

Hands-On Experience for Grade Schoolers

Once grade school arrives, receiving an allowance can help kids learn to live within a budget. Before handing over the cash, however, talk with your children about the purchases you expect the allowance to cover. Otherwise, you may get ongoing requests to handle expenses they believe should not come from their allowance.

Also introduce values. Most children can easily grasp the concept of using their money and other resources to benefit charity. The value of delayed gratification — or saving for big-ticket items and longer-term goals — is another idea that you might want to discuss with your kids.

Decision-Making Opportunities for Tweens

As your children gain experience handling small amounts of money, ask for their input on financial decisions. Before heading out to buy new school clothes, for example, discuss what items your middle schooler needs the most and whether it makes sense to buy several less expensive items or one pricier product.

Given how tuned-in many tweens are, talk with them about how advertisements are designed to prompt consumers’ desires for specific brands. As an example, point out that a popular brand of shoes costs more than a store brand, and ask your tween if they think the difference in cost is worth it. Now is also a good time to open a bank account in your child’s name.

Greater Responsibility in Adolescence

High schoolers can be expected to take on greater responsibility for their own expenses — including clothes, entertainment and mobile phone use. When practical, bring your teenager into the discussion when you are researching major purchases, such as a new car. They can read product reviews and descriptions and compare features and prices. Just make it clear at the outset that you will make the final decision. 

If you believe your teen is ready to handle a credit card, a safe way to start is with a secured card. This line of credit is secured by cash deposited in the account. Once your child has proven to be capable of handling the line of credit, you may decide to allow them to open a regular credit card. Make sure you explain the rules of responsible credit card use and the speed with which debt and interest expense can add up.

Encouraging Further Education

These days, many high schools offer students “life skills” classes that cover financial management concepts. If appropriate, encourage your kids to take them. You may also want to point your children to age-appropriate books, videos and online resources that match their financial interests (for example, about investing or charitable giving). Ask your financial advisor for suggestions.

For more information, contact Justin Sylvan at [email protected] or 312.670.7444. Visit ORBA.com to learn more about our Wealth Management Services.