How to Help Your Kids Become Financially Literate

They may not own houses or contribute to 401(k)s, but kids deserve to know the basics of financial literacy as soon as they understand how money works. Parents who help their children with money from the beginning can set a foundation of good habits that will last a lifetime.

You don’t have to be a financial wizard to give your kids some pointers. Even if you don’t have your own finances in perfect order, your children will benefit from your interest in their well-being. Plus, teaching your children about money may encourage you to take a look at the areas of your life where you could use a financial reset.

Whether your children are learning to read or heading to college, use these tips to give them a head start on smart money habits.

Young Children (Ages 3 to 6)

Kids younger than three usually don’t have what it takes to conceptualize smart money usage. As they enter the preschool years, however, kids can learn lessons about money that will stay with them for the rest of their lives.

During this period, try to correct your own bad habits with money to avoid passing them on to your children. Talk openly around your kids about saving part of your paychecks, and rein in impulse purchases. Remember to vocalize your actions to your children so they understand your thought process: “I want that TV, but I will need to save my money for a while before I can buy it.”

Teach toddlers the names of different coins, and help them identify bills of varying sizes. As they get older, play games and let them do easy math to count out change. You can even give your kids a bit of money at the store and let them figure out what they want to buy themselves. If you give your kid an allowance, create a plan together to save some, give some, and spend some. 

Elementary School Children (Ages 7 to 12)

Kids in elementary school should be able to do all the math required for monetary transactions. They don’t need to think about compound interest yet — at this point, simply putting money away is enough. 

Now you can begin to teach your child how to set financial goals and how to understand the differences between necessary purchases and fun purchases. A kid who wants a dog, for instance, might learn an important lesson by saving up to cover the adoption fees (provided the family is ready for a pet). 

When your kids want something that costs more than their allowance can cover, don’t let them make up the difference immediately with extra chores. Instead, teach them the patience to save up for things they really want. As adults, they may not be able to make more money at a moment’s notice, but they can always learn to cut back when necessary.

Teenagers (Ages 13 to 17)

Teenagers should know how to distinguish debit cards vs. credit cards. Teach them how lines of credit work, and make sure they understand never to outspend their bank accounts or income. Emphasize the importance of paying balances on time and in full. Consider utilizing a prepaid debit card to help teenagers learn about handling money responsibly without accumulating actual debt. 

Before your kids learn to drive, help them come up with a budget to handle their money. Whether they work or earn an allowance, kids should know how to divvy up funds to go out with friends, fill up the car with gas, save up for big events, and build an emergency fund. Help them open their first bank accounts by walking through the process together, either online or at a bank. Open a checking account and a savings account, explaining the differences between the two as you go.

In most cases, kids under 18 can’t open brokerage accounts, but it doesn’t hurt to help them start investing early. Sign up for an investment account together, and put most of the money into safe vehicles like index funds. Confident kids may want to test their mettle as traders, so set aside a little money to lose as you try to beat the market together. Show them early that not even the smartest investors can outthink the market.

Young Adults (Ages 18+)

Before your kids move out, help them open their first credit cards. Many providers like Discover and Mastercard offer student credit cards with no fees, and some even offer cash back. Help them practice paying bills online and managing their budgets independently before they have to do it for real. 

Teenagers who hold jobs in high school may already know a little about taxes. Use this opportunity to help them project their tax liability throughout the year. Many young people take gig jobs in college, and while extra beer money never hurts, students get into trouble when they forget to save their 1099 income to pay self-employment taxes.

Finally, make sure your older kids know the basics of credit scores, and show them how to access their credit report through providers like Experian before they fly the nest. Remind them that they never need to pay interest to boost their scores and that carrying a balance only benefits the bank. Warn them of the dangers of payday loans and other quick-money scams that could make their lives miserable. 

From counting numbers on their fingers to buying their first cars, kids grow up quickly. Don’t let them reach maturity without a solid foundation of financial literacy. Watch your own habits, educate yourself on good financial practices, and give your kids the background they need to enjoy financial security throughout adulthood.