Question: How do I raise money-smart kids when my child constantly wants the latest thing they see their friends playing with, and everything around them screams “buy it now”? What can I actually do to instill good habits now?
Answer: Money may seem like a challenging topic to discuss with your children, but it’s important to start having money conversations as soon as possible. There’s no better place to start than at home.
When you first start teaching kids about money, it doesn’t have to feel like a lecture. It can be experiential, fun, and as engaging as you make it. Your goal is to help them develop the kind of healthy spending habits that will turn them into grown-up savers and investors you’ll be proud of.
The experience of buying a toy can be a great way to teach children about money. When you and your child are in a store together and they ask for a toy, you can explain that they’ll need to save their money in order to purchase that item, and that hard work will be necessary in order to make it happen. Then, you can give them a job or chore they can do to earn money to put toward their goal.
It’s important for your children to understand early on that it’s okay — and necessary — to wait to purchase something they want. Everyone in the family needs to save up for their goals. You can illustrate this by explaining to them how you save to buy things you want, too. These lessons are often best taught in everyday life rather than in a formal setting. These values can be shared while shopping for groceries, or even when buying things online.
By the time your child is in elementary school and learning more about how much things cost and the concepts of working and saving, you can help your kids open a savings account at your credit union. And by middle school, children should be able to set and achieve financial goals like saving for something specific.
Once kids see their accounts growing, it becomes a self-fulfilling cycle — they feel confident about their ability to accumulate money, which motivates them to keep going. This builds real self-esteem in their ability to grow their savings.
It’s also important to teach them the “pay yourself first” rule of personal finance so they know what it takes to gain security and to be self-reliant. When your child gets an allowance, earns a first paycheck, or finds $10 in a coat pocket, their first order of business should be to stash away a portion in savings. While older children can save money in their credit union account, younger children can use a piggy bank as a visual reminder of what it means to save part of the cash and coins they receive.
And as your children mature, make sure they learn about the life-saving value of having an emergency fund. You can do this by sharing a real situation where having a little cash on hand saved you from disaster. (A youngster’s “emergency” might be not having enough money to chip in for a friend’s birthday gift. These lessons build resilience long before adulthood.)
Teaching children about the importance of saving at an early age allows them to develop good habits and grow into financially healthy adults. You want them to have a positive relationship with money. Part of that comes from how you explain it to them — and the rest comes from what you model. Your child is watching everything that you do.
Practicing good financial habits, having open conversations about money, and identifying everyday “teachable moments” are all vital to cultivating a strong financial education.
As they get older and start thinking about college or a job of their own, it’s a good idea to talk to them about your investments in 401(k)s, IRAs, and other retirement accounts. This is an excellent way to show them the power of compound interest. The real magic is time (which they have plenty of) and patience (which can absolutely be learned). And once your child earns their first real paycheck, you can help them open their very own IRA (pro tip: make it a Roth!) and start building their future.
As we strive to talk more openly about money with our children, it’s crucial to explain the “why” behind family money decisions when appropriate. Don’t let your own financial uncertainties make money a taboo topic in your household. All of us learn by example — and we learn even more when others share the mistakes they’ve made.
Ultimately, teaching your kids about money goes far beyond helping them save and invest their paychecks. It builds confidence in a profound way. Being able to manage their money is a skill children can grasp early and build on their whole lives. They don’t have to fear it. And once they master it as kids, it becomes something they carry with them forever.