How to teach your kids about money

By Katie Martens

My kids really want to get a dog. My son specifically wants to get a golden retriever. In our area, even buying from the golden retriever rescue group costs a minimum of $400. You can imagine, then, what buying from a breeder would cost. Instead of privately setting aside money towards a dog in our savings account, I created a “dog jar” for the kids to earn money towards the purchase of a dog. I also created a “Disneyland jar” when we were saving towards our trip to Disneyland. The kids love it for several reasons:

  1. It’s visual - the kids can look at the jar, sitting on our kitchen counter, and know what that money in the jar is for. They often ask to pour out the money and count it, which is another great visual for them to see growth, and sometimes, stagnation, in the progress towards their goal.

  2. It provides perspective - when I tell the kids what prices I’m seeing for golden retrievers, and they compare it to what they have in the dog jar, they see how much work on their end it will take to get to their goal. My husband and I also contribute to the dog jar when we sell something through Facebook Marketplace, but it helps all of us to appreciate how far we had to come to get to where we wanted to go as a family. When we saved for Disneyland, the kids saved up almost $800. They were delighted, and then also shocked when I told them that the $800 would pay for about 3 tickets to one day of Disneyland, hah. My husband and I made up the difference, of course, but it certainly made them appreciate the trip even more.

  3. It makes for good goal-setting - my husband once took some cash out of the jar to break a larger bill he had, and the kids were furious. There was no letting him off until they saw he had returned what he took out a few days later. By designating it as our dog jar, the kids are focused on what a bigger financial goal will be for our family and feel part of the effort to achieve that goal.

In this article, we’ll discuss why teaching kids about money is important, and outline ideas for what you can teach at different ages.

Why is Money Important

Someone once told me that if parents aren’t having the conversation about sex with their kids, they’ll get the information from someone else. The implication is that if you don’t trust what your kids’ friends will say, then you should initiate the education to empower them with the correct information.

I think the same is true for money. Teaching and modeling good money habits provides an excellent foundation for kids to build on as they grow older. Also, demystifying money can help children learn how far their dollar truly can go, and provide them perspective on the cost of things.

When to Talk about Money: Ages and Guides

Young Children (ages 3-5): this age is too young to understand abstract financial concepts, but you can still help them build a foundation towards a better relationship with money. According to the Consumer Financial Protection Bureau, these are key financial skills at this age and help create a foundation for behaviors that support financial well-being:

  1. Learning to plan ahead;

  2. Wait for things they want;

  3. Finish what they start

Keep in mind that at this age, kids are sponges and will soak up whatever they see you do. When you shop for a bargain, splurge on a treat, or plan a special occasion, you’re showing your kids how you think about money.

School age children to Preteens (between the ages of 6 and 12): This age is really where kids start to absorb general rules of thumb and daily habits that shape how they earn, save, and shop. Here are some ideas to talk about and how to implement them:

  1. Earning - this is a great conversation if chores are part of your family household. If your kid wants the newest, coolest pair of sunglasses that all of his baseball idols wear (trust me, that’s a thing right now), it’s a good opportunity to ask him how he’s going to purchase $200 sunglasses. And then to see how jobs he performs for family or others can get him closer to his ability to pay for those sunglasses on his own.

  2. Saving - I think this concept ties nicely with earning. How much of what you earn can go directly towards a purchase, and how much do you need to set aside in order to reach a bigger financial goal?

  3. Planning - again, another concept that could probably be discussed at the same time as earning and saving. Your child will need to make choices about how to spend his or her money.

  4. Shopping - when the kid thinks he’s ready to buy those sunglasses, after many hours or lawn mowing or babysitting or chores, this concept is a great one to bring up so that they realize they don’t have to purchase at the first place that comes to mind. It brings up a lot of skills of comparing prices and comparing features of a product before you buy.

  5. Borrowing - if your kid asks to “borrow” money for the snack shack at the baseball fields, is it a loan or just a gift? It might feel silly in the moment, but it’s a great opportunity to teach your kid the difference, and the danger of entering into borrowing situations without a means of paying back that loan. Plus, you can go down a whole other rabbit hole on charing interest!

  6. Protecting - avoid sharing information online and keep personal information private. Children should never give out any personal information when they’re on a computer or iPad. It’s like leaving a front door unlocked and open for a burglar to take things from a house - leaving personal information online is risky because someone could steal it and use the information for criminal activities.

Teens and Young Adults: this age is where they really start earning money, if they have a job, and the financial landscape begins to look more like the adult financial landscape. Keep in mind that you’re still trying to teach fundamentals to teenagers, it’s just got additional layers with their additional independence. Here are some skills that the Consumer Financial Protection Bureau recommends all teenagers should work toward:

  1. Ability to manage money or other resources to reach a goal;

  2. Understanding money concepts like long-term savings, taxes, invoice, or bank statements;

  3. Identifying reliable information sources and how to sort through information to get answers

The same ideas that were discussed with school-age children get elevated with teenagers:

  1. Earning - your paychecks might be smaller than you expect because taxes are taken out first. You may have to have multiple conversations about taxes - tax brackets, the W-4 form, what taxes are for, and the difference between gross pay and net pay.

  2. Saving - this is where you can talk about rules of thumb on how much to save from each paycheck, and how much to keep in your savings account in case of an emergency. For instance, you may counsel your teenager to set aside 10% of every paycheck into their savings, and work towards having 3 months’ worth of living expenses in their savings account. It may not hit home as well with a teenager who still lives with you, but it certainly drives home the point when said teenager’s car dies and they need funds to repair the car.

  3. Planning - teenagers understand abstract concepts now, so you can discuss long and short term goals for their financial health. Teenagers begin to face a lot of big goals: college? Purchasing a car? Moving to a new city or place? What does your teenager want to do with their life, and how can financial goals help them get there?

  4. Borrowing - the biggest topics in this category that come to mind are credit cards and colleges. Make sure your teenager knows the value and the downside of owning a credit card, as well as making sure they understand the financial risk of taking on student loan debt for college.

Protecting - at this stage, teenagers are likely getting ready to leave your house in the next or immediate years. Wherever they land, they need to be reminded of the importance of obtaining insurance for renters coverage, homeowners coverage, and health coverage. This is a good time to explain the purpose of insurance (it’s meant to avoid high costs when something goes wrong), and how to shop for insurance by comparing features and prices.