Money Through the Ages
How to teach your kids about money at each stage of childhood.
You’ve introduced your child to so much of the world already, but money seems to be a conversation many parents have trouble starting. However, studies have shown that when you talk to your kids about money, they are more likely to save and be financially secure in their lives.1
Truth be told, most parents don’t feel qualified to teach their kids about money because they’ve made money mistakes themselves. But you don’t need to be a financial adviser to explain money to a child and offer basic advice. After all, you may not have won the Tour de France, but you can still teach your kids to ride a bike. By teaching them about saving and paying bills, you can hopefully help your children avoid financial troubles as an adult.
From toddlers to teenagers, every age brings unique opportunities to teach your kids about money. And according to Jayne Pearl, author of several books about financial parenting, you just need to start. “If your kid is ready to have a conversation, you can try to have a conversation. If it bombs, you can try again in a few months or next year, but I think it’s never too early to try.”2
It all adds up
Children start counting at around age 3 so that’s when some parents start teaching their kids about money. They won’t understand everything, but at 4 or 5 you can help your children understand that different types of money have different values. Show them how a quarter is worth more than 10 pennies, and how to add these coins together. They may not get it right away, but the goal should be to help them develop a basic understanding and get more comfortable around money.
Show me the money
In a world where swiping cards to pay is so common, children who see cash find it easier to assign value to it.1 If you make an effort to carry real currency around, your children will start recognizing the different values of each bill and coin, which will help them better understand the concept of exchange.
Easy as 1-2-3
Even adults can find budgeting difficult. But to help children budget their money, you can keep it simple. Try putting aside 3 jars labeled “Spending,” “Saving” and “Sharing.” Whenever money comes in, encourage them to split the money among the jars. Put 50% in “Spending” to use whenever they like, 40% in “Saving” to go toward a particular goal and 10% in “Sharing” for gifts or donations.
A penny saved
Saving for the sake of saving is not something many children will understand. Instead, help your kids create a savings goal. If they really want a video game, change the “Saving” jar to the video game title. You can even measure the progress with a growth chart and a red marker to help visualize their savings. By teaching kids to save money, they may feel encouraged to put away even more to reach their goal.
A penny earned
Having your children earn an allowance by completing chores can help them understand that money isn’t free. No chores. No allowance. Even if it’s only $5 a week, having a source of income will give them a chance to start managing money at a young age. You could also have your children earn money for larger chores like Susan Borowski, mother and author for moneycrashers.com. “The amount [my 13-year-old] earns depends on the difficulty of the task or how long it takes, so we discuss money each time he takes on a larger task.”3 This can help your kids develop a strong work ethic and have an appreciation for earning their money.
Make money mistakes
Consider letting your children manage their own money. You can offer some guidance, but you should know that letting them make a $10 mistake—like spending all their money on a toy they only use once—could save them from making a $1,000 mistake later on in college.2 It’s never an easy lesson to learn, but it’s better they learn it when the stakes are lower.
Also talk to your kids about money mistakes you’ve made. In general terms, you can mention how you may have spent too much on something or didn’t have enough savings when you wanted it. Help them learn from your experiences.
All the way to the bank
Once your child is around 9 or 10, they could be ready to go to the bank and open a real savings account. Remind them of their “Saving” jar, and create an even greater goal for this account. Whether it’s college, a car or an emergency fund, by now they’ll have a stronger grasp on how their savings can grow over time.
Get what you pay for
When your children reach middle school, it’s a good time to have them start paying for more things you used to buy for them. According to Jean Chatzky, financial editor of The Today Show, you can “come up with a list of things you have paid for in the past that you know your kids want, that you’re no longer going to pay for. Make them allocate their resources…research shows kids that get an allowance understand that credit is not an unlimited resource in the future.”4
No need for “wants”
A few years later, when your child becomes a teenager, they should have a decent grasp of value and saving. But as they test their boundaries and develop new interests, your guidance can help them avoid common pitfalls. Discuss “wants” versus “needs.”5 You may even consider sharing your own finances to illustrate family necessities like your bills, food and home.
Explaining money to a child doesn’t have to be difficult. You might start teaching kids about money as young as 3, but even if your children are older and almost ready to go off on their own, it’s still not too late to open up a dialogue and teach your kids money management. Share your advice and mistakes while offering lessons they can take with them. Providing some financial literacy for your kids as they grow can help them make smart money decisions for the rest of their lives.
This site is for educational purposes. The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the availability or suitability of any Capital One product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional.
Chatzky, J. (2017, August 15). Sounds impossible? Kids as young as three can learn the value of money. Retrieved April 17, 2018, from: https://www.nbcnews.com/business/personal-finance/how-teach-your-kids-value-money-early-age-n792566
Wallace, K. (2017, September 20). Why don't parents talk to kids about money? Retrieved April 17, 2018, from: https://www.cnn.com/2017/09/13/health/money-talking-to-kids-parenting/index.html
Borowsky, Susan. (n.d.) Allowance for Kids—Types & How Much You Should Pay for Chores. Retrieved May 18, 2018, from: https://www.moneycrashers.com/allowance-kids-chores
(15 Aug. 2017) How to Talk to Your Middle School and High School Kids about Money. Retrieved May 18 2018, from: www.today.com/video/how-to-talk-to-your-middle-school-and-high-school-kids-about-money-1024946243822
Office of Adolescent Health. (2016, October 17). Talking With Teens About Money: Talk With Your Teen. Retrieved April 25, 2018, from: https://www.hhs.gov/ash/oah/resources-and-training/for-families/money/teen-talk/index.html