Financial literacy is an essential skill that should be introduced to children at a young age. By teaching key concepts at various stages of their development, you can help your children build the habits and knowledge needed for a secure financial future. From basic saving and investing, to budgeting and planning for retirement, this guide offers some suggestions on how to empower your children to make informed financial decisions and become financially independent.
At this early age, your primary role is to create a foundation for financial well-being. A good first step is setting up a 529 college savings plan on their behalf. Even if your child doesn’t fully understand it yet, it’s a meaningful way to prepare for future education costs while modeling the importance of planning ahead.
A piggy bank is a fun way for them to participate in their own savings. Stuffing monetary gifts from family or the tooth fairy into their bank not only helps them learn about different denominations of money, but it also helps them grasp the basics of money management, including accountability and responsibility for their money and goal setting. Watching their savings grow can also give them a real sense of pride and accomplishment. Hands-on play is another great tool. Toy cash registers and pretend checkout stands can be found in toy shops and online and can help introduce the concept of exchanging money for goods and how to balance needs versus wants when considering purchases.
This phase is all about helping children understand money and its value. It’s the time where the piggy bank is replaced by an actual savings account, introducing the child to the idea of banking in a hands-on way. Continue to educate them on what money is, how it is earned, how it works for us, that it is not unlimited and that it requires thoughtful choices as to how it is used. This is also the age to start discussing delayed gratification. If they want a toy or a treat, help them set a goal and show them how to save for it. Discuss how to weigh whether a purchase is worth the loss of saved money. Simple concepts like “spend now or save for something bigger” can teach them critical thinking about money.
To make these lessons more engaging and interactive, try using flash cards that introduce key money terms (like save, spend, need, want) and interactive financial scenarios for your child to solve. A quick internet search on “financial literacy flash cards” will lead you to several online retailers offering these educational kits specific for different age groups, making it easy to select the best option for your child.
If your family believes in charitable giving, this is the time to begin talking about your family’s values. Let your child know where you choose to give and why. A simple way to illustrate giving in the greater scope of your family finances is in terms of the “Save, Spend & Give” system-what we save for the future, what we spend for what we need, and what we give to help others. These talks should grow in meaning and substance along with your child.
As your child begins to understand the importance of saving, it’s time to introduce the concept of actually earning their own money to save for future goals. Encourage them to look for small jobs—walking the dog, doing chores for neighbors, or taking out the trash. If your family practices an allowance system, emphasize that money is earned and not just given as part of their daily responsibilities. This is also a good time to discuss how money in a savings account can grow over time because of interest. You can explain it in simple terms, like saying the bank gives them a little extra money as a “thank you” for keeping their savings there. Once they understand that, you can introduce the idea of compound interest—that not only does their money earn interest, but over time, the interest itself can earn more interest, too. This helps them learn why saving early is important and how even small amounts can really add up when they leave it alone and let it grow.
If you have not already, look for banks with youth savings programs that offer competitive rates and open an account for your child[1]. Typically, the parent is the co-owner of the account, but they often have kid-friendly features, such as low or no fees and interactive games on their website. Some banks even make a small deposit, like $10 or so, on the child’s birthday. These accounts often “grow” with the child, eventually offering a debit card and the ability to transition to their own “adult” account when they are of age.
There are also many kid-friendly financial literacy apps that use games and visuals to teach saving habits, goal-setting, and basic budgeting. These tools can make learning about money more fun while imparting knowledge and reinforcing good habits early on.[2]
At this stage, especially if your teen is working, it’s time to get more intentional about saving. By now they should have a good grasp on what money is and why saving and goal setting is important. They should also have a solid understanding of more advanced concepts such as earning compound interest, interest rates and maybe even the basics of the stock market.
Introduce them to long-term savings and investment vehicles, like Roth IRAs. You may want to encourage and help them set up their own Roth IRA where they can contribute some of their earnings. You may even offer to “match” a portion of their savings for a short period of time to help them appreciate the importance of saving consistently. Even if retirement seems far away, discuss both pre-tax and after-tax earnings so they learn how taxes impact their income and future savings. Teach them the basics of budgeting, as it relates to them, by helping them track where their money goes, whether it’s for movies, gas, or other expenses. This shows them how short-term spending fits into the bigger picture of saving and investing, a concept they will need in their near future.
When your child enters college or the workforce, they’ll have more financial responsibility. If they are a full-time student, encourage them to work in the summer months so they have income to use during the school semesters. Help them develop a budget for everyday life, covering essentials like housing, gas, groceries, and other daily expenses, as well as for big-ticket items, such as study abroad opportunities. Introduce them to budgeting apps to track their spending[3]. Many of these apps will categorize spending habits to help show where their money is going and offer personalized budgets based on income and expense history. Several of these apps allow the more serious user to customize their own financial reports.
Have them pursue internships in their desired field to better understand what opportunities and potential earnings await them post-graduation and so that they gain valuable skills for future employment. You can discuss the significance of opening a credit card at this point, to help them learn debt management and the importance of building a good credit history. Encourage them to save for the future, not just for immediate needs.
Beyond their own lives, understanding economics is fundamental to being able to succeed in a complex world. Suggest they read and discuss current events related to the economy, business, or financial markets. They should have a grasp on the real-world impacts of economic decisions made by federal, state and local governments.
For recent college graduates or those entering the workforce out of high school, it’s time to dive deeper into investing and retirement planning. Begin by discussing employer benefits like matching 401(k) plans or Health Savings Accounts (HSAs) to ensure they don’t miss out on valuable opportunities or leave money on the table. Introduce the topic of risk tolerance and diversification. Talk to them about building an emergency fund and creating a plan for major purchases, such as a car or home. Help them explore investment options that align with their financial situation. If they have debt, discuss strategies for paying it off while still prioritizing saving and investing for the future. This is also a good time to revisit the chat about your own charitable giving and how it has aligned with your family values through the years. This will help get them thinking about how they may want to participate in charitable contributions with their own money now or in the future.
Teaching your children about money is a lifelong journey that evolves as they grow and develop. By starting early and gradually, you lay the foundation for them to become financially responsible, independent adults. The key is to make learning about money practical and appropriate to their life stage. With your guidance, your children will not only come to understand and appreciate the mechanics and value of money, but also develop the confidence to make informed financial decisions throughout their lives.
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