How to Raise Financially Savvy Children (Lessons for Every Stage)

Financial literacy is a crucial life skill that can greatly impact a person’s well-being throughout their life. Children will receive many messages about money that, although they have varying levels of accuracy and usefulness, will follow them into adulthood. These messages about money, which will go largely unquestioned, can impact many aspects of their lives. By introducing money concepts more strategically, we can help ensure we’re raising financially savvy children.

Put another way – By teaching kids about money, from a young age, we can get intentional about the information they’ll internalize, to ensure they develop a strong foundation for lifelong financial health.

Let’s look at some options…

Financially Savvy Toddlers

Teaching toddlers about money and finances may be challenging at times, but it’s a good idea to start when they’re young. To keep the lessons age appropriate, stick to introducing simple concepts. Play games or select fun activities to ensure its both informative and entertaining. Becoming comfortable with some of these basics, from a young age, will put children on a path toward financial stability.

Coins and Bills

Introduce toddlers to currency denominations by showing them coins and bills. Use play money or images of real money (to ensure safety). Teach them to associate what they’re playing with or looking at, with its value. Create a game for kids to sort and match coins or, perhaps, explore currency from other countries.

Piggy Banks

Encourage toddlers to save by providing them with a piggy bank or clear jar to drop coins into. Let them know that saving money will allow them to buy something they want in the future.

At this stage, deposit coins into the piggy bank together, this way you can emphasize the importance of setting money aside, while also ensuring the coins aren’t swallowed.

Needs vs. Wants

Teach toddlers the difference between a need and a want. Needs can be illustrated using food, clothes, and various forms of shelter (apartments, houses, condos). Let them know that toys and treats are wants. Reinforce the idea that needs are more important and come before fulfilling our wants. This will help them become more financially savvy.

Sharing is Caring

Children can be taught generosity to others through giving. Whenever they take money out of their jar or piggy bank, have them set some aside to give to a charitable cause. To instill generosity with loved ones, occasionally have them use money they have saved to buy a gift for a friend’s birthday party, relative’s graduation, or a present for a sibling during the holidays. In addition to furthering your child’s financial education, these lessons encourage empathy, compassion, and a sense of community.

Counting

Use games and activities to help develop basic counting and other simple math skills.

Count objects, group them together, then add or subtract some of them. This will lay the foundation for understanding more complex concepts and basic calculations down the road.

Raising financially savvy children involves introducing core concepts early.

Delayed Gratification

The importance of learning the value of delayed gratification in lifelong financial success cannot be understated. Day to day interactions will provide many, many opportunities to teach toddlers to wait for what they want. Let them know that when they want a new toy, they’ll need to save money to purchase it. This helps children develop patience. They’ll begin to understand the value of waiting and planning. Eventually they might notice how fleeting their wants can be.

Role Play

Encourage your toddler to engage in pretend play that involves money. Set up a store where they can use their play money to buy groceries, or where they’re a cashier ringing up your items. Exploring a concept through interactive play provides gobs of laughter and fun, and also a deeper understanding.

Introducing financial concepts and lessons early can set the stage for responsible money management throughout life. Remember, keep the activities simple, engaging, and enjoyable to ensure learning lessons about money is a positive experience.

Preschoolers

Continue to advance the lessons introduced when your preschooler was a toddler. If the fun begins to fade, make games and activities slightly more complex. Once children reach preschool age, they’ll likely be ready for a few new financial concepts.

Making a Living

While preschoolers aren’t ready to pick up a part time job, they are at a place where they’re able to understand that grownups earn a living through work. Explain that parents and other caregivers have careers that allow them to provide for themselves and their families. Introduce them to a variety of professions, then encourage imaginative playing where they pretend to be a chef, doctor, firefighter, or scientist. Help them understand the value of finding a rewarding career and working to earn money.

Spend Smart

Preschoolers are ready to move from spending to smart spending. Introduce, in playful ways, the importance of making informed choices when purchasing needs or wants. Teach them to compare prices and product quality.

Show your preschooler food labels, choosing one item of information to focus on. Over time, expand what they’re familiar with and understand on labels.

Encourage them to think more critically and to make more thoughtful decisions when spending their savings.

Financial Storytime

From The Berenstain Bears’ Dollars and Sense to Iggy Peck, Architect there are many great books out there that can be used to reinforce the lessons your kids are discovering through activities and pretend play. Stories can introduce concepts that don’t easily translate into play, or that you’re struggling to figure out an activity for. Raising financially savvy children involves making “money stories” fun and engaging.

Take the time to promote responsible habits and a healthy relationship with money, while also developing your preschooler’s ability to think critically. Engage your kid’s imagination through activities, stories, and discussions. Strive to make the learning process fun and memorable. Begin preparing your little ones for the day when they’ll need to navigate a financially complex adult world.

Financially Savvy Grade Schoolers

Between age 5 and 12, children begin to grasp more complex concepts and are able to take on more responsibility. It’s the opportune time to introduce more abstract concepts, expand their knowledge, and instill good habits.

Budgeting

Middle childhood is an ideal time to introduce the concept of budgeting. Teach children to allocate their money for different purposes, including saving, spending, investing, and giving.

Encourage them to create simple budgets to prioritize their expenses and make conscious spending choices.

Allowance

Providing children with an allowance is an effective way to teach them about money management, financial responsibility, and decision-making from an early age. When determining how much to give them, begin by assessing their financial responsibilities. If they, for example, are using money to buy a snack while at school, add that amount to their allowance.

When deciding how much to give a child, in addition to their expenses, consider their level of maturity. You’ll want to give them enough to provide an opportunity for budgeting and allocation, but not so much that they don’t have to make difficult choices or delay gratification. One strategy is to give them the money needed to cover expenses while having them earn, through chores, funding for discretionary spending. Remember, to raise financially savvy children, you’ll need to give them more freedom and responsibility as they mature.

Household Income & Expenses

In addition to their personal finances, grade school children can be introduced to household budgets. Explain the types of expenses individuals and families have, show them how and when you pay your bills, and share some of your short and long-term financial goals.

Think of something from your budget that would be appropriate for collective consideration, potentially saving for vacation. Inviting them to weigh in on larger decisions is a key to raising financially savvy children.

Questioning Spending

At this age, children are able to move past price and quality to consider the value of money as they make financial choices. Teach them to ask themselves questions, prior to purchasing, such as, “Do I need this?”, “Is there another option?”, or “Will I want this in a few months?” These thought processes help your child avoid impulsive spending and develop healthy consumption habits.

Banking

Take your grade schooler to a bank to learn about the products and services offered. Introduce them to checking accounts, savings accounts, debit cards, and credit cards. Certificates of Deposits (CDs) could be used to teach children about interest. Consider purchasing a CD for your child, with a 3-6 month maturity, to introduce the concept of liquidity. When you feel your child is ready, open a custodial account together.

Volunteering

Grade school is a wonderful time to expand the idea of charitable giving to include offering one’s time and efforts. From community gardens and cleanup projects to helping at the library, there are a multitude of age-appropriate, kid-friendly volunteer opportunities out there.

Entrepreneurship

The lemonade stand is one of the most well-known ways for children to start a business, but it isn’t the only way to nurture an entrepreneurial spirit and introduce kids to simple bookkeeping andaccounting concepts (earnings, expenses, profit, etc.). For instance, older grade school children can tutor younger children or rake the neighbor’s leaves. With the assistance of a parent, middle graders may be able to become a plant sitter or walk dogs.

Middle childhood is a pivotal stage for financial literacy. It’s the perfect time to reinforce the key financial concepts introduced earlier, while encouraging skills and a mindset that will shape financial decisions and behaviors in the future.

Provide real-life examples and opportunities to make the learning process more engaging and practical. If you can involve your grade school child in these types of activities, they will be on track to a bright financial future!

Teens

Teaching teenagers about finance is a valuable way to invest in their future. Equipping them with essential financial skills and knowledge during the formative years creates a solid foundation that will allow teens to avoid some of the common economic pitfalls of young adulthood.

From Budgeting to Money Management

It’s crucial to instill in teenagers the importance of managing their money wisely, since they will (sooner than you imagine) be making decisions on their own. Encourage them to track expenses and make conscious choices based on their personal financial goals.

Investing

Teach your teen about the profound power of compound interest and the concept of time horizons. Emphasize the immense benefits of starting to save and invest early. Encourage setting aside a specific percentage of their income to invest toward achieving long-term financial security. Talk to them about the importance of planning for the future. Explain what an emergency fund is and, when they begin working, suggest they set aside a portion of each check until they’ve saved enough to cover expenses for a few months.

Planning Ahead

Talk to teens about educational savings accounts, and the reasons you’ve made the decisions you have in preparation for their educational expenses. Discuss the differences between Traditional andRoth Individual Retirement Accounts (IRAs).

Debt Management

Educate teenagers about the risks and consequences of debt. Teach them ways to borrow responsibly, the importance of maintaining a good credit score, and the potential long-term impact of having high-interest debt. Arm teens with the knowledge they’ll need to make informed decisions, in the near future, regarding student loans, auto loans, and credit cards.

Paying Taxes

Introduce your child to tax basics, including the different types of taxes and how they’re calculated. Teach them how to file a tax return, common tax deductions, and what they’ll need to retain with respect to records and receipts. Creating a strong foundation, by introducing financial life skills, is crucial to raising financially savvy children.

Choosing a Career

Have teens explore their options and opportunities as they move into adulthood. Encourage creativity, innovation, and a love of learning. Help them understand the value of hard work and gratification that comes from producing quality products or providing stellar services. Inspire teens to think outside the box and pursue their passions while also considering the practical and financial aspects of their choices.

Living in the Present, While Preparing for the Future

Discuss the importance of responsible spending habits. Reinforce earlier lessons about assessing value and practicing delayed gratification. Encourage your teenagers to set financial goals, and determine what they need to do to reach them. Help them understand how smart choices, combined with the willingness to make small sacrifices today, offers greater financial independence in the future.

Financial Literacy

Encourage teenagers to go beyond the basics by taking classes, reading books, and exploring online resources about investment, finance, and economics. Let them know that personal finance is a lifelong journey.

Teens will soon navigate economic landscapes on their own. Offer them the knowledge, skills, and tools they’ll need to feel confident and prepared for the complex decisions ahead.

Live the Lessons!

Children learn as much through observation as education. What you do with money is as important as what you tell them about money. One of the best things you can do, as a parent, is work on your own financial health, continue your own financial education, and let your children see firsthand that you’re practicing what you preach.

At the end of the day, you’ll rest easy knowing you raised financially savvy children, who will grow up and become financially savvy adults.

Subscribe for thoughtful notes on money, meaning, and designing a life that’s uniquely you — delivered straight to your inbox.