Teaching Kids About Money: Financial Literacy for the Next Generation.

Teaching kids about money is one of the most important things we can do as parents and family members. Money plays a major role in shaping our lives and how we live them, and teaching kids about spending wisely, the importance of saving, and learning money management skills helps set them up to succeed as adults. Whether your child is four or fourteen, it’s never too early to get them on the path to financial literacy.

Money fundamentals that we teach our kids should vary by age. Learning to recognize different coins and bills and understand their value is a good place to begin with younger children, even in a world where cash transactions occur infrequently. Cash can help teach them how to count, to understand the value of goods, and physically illustrate the benefits of saving. A young child may not understand why a jar of jellybeans costs five dollars, but they can grasp the concept of how a jar of dimes or quarters can buy multiple jars of jellybeans. From there, teach them how to make choices on whether they want to spend that jar full of coins on: candy? Save it up for a bike? Maybe even a car? Odds are they’ll choose the candy, at least for a while, but the seeds get sown.

Giving a child an allowance, especially one that comes with associated responsibilities like household chores, can help build their understanding of how money works. Teaching them that they can buy cookies with their allowance or buy the ingredients to make cookies and sell them to friends and neighbors (while keeping some for themselves – and maybe their grateful parents) is another valuable lesson on how money works and how to spend it wisely.

When you feel they are ready, encourage your child to find a part-time or summer job. Not only will it give them a sense of maturity and empowerment, but it can also introduce them to the concept of budgeting and saving using the 50-30-20 rule, even if it at their age it doesn’t have a practical application to their own situation (stress the “yet” part). If they understand early on that they should spend 50% of their earnings on essentials, 30% on “disposable” or personal needs, and save the remaining 20%, they’ll be better prepared later on when they need to create a budget that allows them to live comfortably within their means.

Your kids will undoubtedly make bad financial decisions. We all do, that’s part of growing up. When it happens to yours, treat these decisions as learning opportunities which can provide valuable lessons in opportunity costs, delayed gratification, responsibility, maturity, and the rewards of planning ahead.

Speaking of planning ahead, as they approach their teens, consider sharing your family budget with them. Show them how your family’s money is prioritized, and its cost-of-living expenses in practical, relatable terms. The numbers may be beyond their comprehension at first, but it will help them learn how to manage money, the importance of a household budget, and how to consider and serve the needs of everyone in the family.

The most important aspect of developing financial literacy in young people is to teach them the importance of saving, and the importance of making saving a life-long habit, even if your own track record is different. For example, help your kids set up a Roth IRA, explain how compound interest and investing works. You can encourage them to save money in an IRA by matching it. Later on, this will have already taught them the value of contributing the maximum amount allowed to earn an employer match to their 401k so they can retire early or buy their first house- it’s free money, and every kid loves free money.

Finally, teach them how money grows in the stock market by having them research and track the performance history of stocks for products or companies such as Apple, Disney, Netflix, or Celsius, and emphasize how investing in these companies can make their money work for them in the long term. Share online resources with such as Everfi, Greenpath, and GoalSetter to help inform and educate them – they’re more likely to take the word of others instead of yours at a certain age (don’t fret – this too, shall pass). And remember, teaching your kids financial literacy won’t make them happy, but it can give them the freedom to pursue what does. Give them that.