Finance 101 for Kids: How to Teach Your Kids Great Money Habits
You don’t want personal finance to become an afterthought — one of those things you “should have discussed” with your kids before they start their adult lives. Their financial education starts with you! If that sounds like a lot of pressure, don’t worry. In fact, giving them accessibility to you to ask questions often makes the biggest difference in your child’s understanding of financial literacy.
In fact, a Money Confident Kids survey indicated that only 23% of kids talk to their parents frequently about money. These low statistics may not help their kids in the future when they encounter serious money situations, such as student loan debt, mortgage matters and more.
Let’s discuss some personal finance topics kids should know about (including best practices to make learning fun!), how to encourage saving and develop money management skills, modeling good money skills and utilizing learning resources like the UNest app. Let’s get started.
How Do I Teach My Child About Finance?
How do you explain money to kids? What is the best way to teach such an important topic like personal finance to a small child or an older one? After all, it has such far-reaching implications in real life situations.
If you’re nervous that you don’t have the “right” qualifications to teach your kids about money, you can also hit the library checkout with a great book about finance or download juvenile nonfiction audiobooks on Amazon and listen to them together.
If you’re ready to roll up your sleeves, let’s walk through how to talk to kids about financial matters at each age level.
Start with the Basics at a Young Age
What age should kids start learning about finance? Believe it or not, you can kick off the personal finance conversation with children as young as four!
Pro tip: Your best bet at any age is to make it a fun and enjoyable experience for you and your child.
Ages 4 to 6
You’re not going to start off the bat talking about foreign exchanges or currencies with your four-, five- or six-year-old (as in, teaching them about forex trading!) but you can certainly introduce the basics of personal finance.
- Show your kids money. Teach them the names of all the coins. Many kids may not even see too much cold, hard cash, especially if you primarily use credit cards every time you go to the store.
- Teach them about saving money. Does your child have a piggy bank? Every time your child receives money for a birthday or holiday, allow your child to fill up the piggy bank every time. It’s a great visual way to start saving until your child understands the concept of a savings account. Watching the money build up is the first step for your child to learn the benefits of saving.
- Talk about spending money. Your child may want a special toy or treat. Practice setting aside some money from savings in order to buy the toy or treat.
- Read a kids’ book about money. Choose an age appropriate book about another child (or an animal, etc.) going to the bank and depositing money. It can be a really short book that will underscore the foundation you’re trying to build about how to save money.
Ages 7 to 10
Kids aged seven to 10 can absolutely start learning about responsibility with money. You can extend the basic concepts you taught them when they were younger. Consider getting an activity book that they can fill out or play games related to money. Here are some concepts related to some of the fun activities that you can bring up as you get going on your kids’ financial education at this age:
- Distinguish between needs and wants. What’s the difference between needs and wants? Give some good examples, such as the fact that your child may think she needs a new bike, when in fact, that’s actually a “want.” On the other hand, she may truly need new shoes because her old ones are worn and she only has one pair of shoes.
- Talk about the importance of giving back. Part of being a good citizen involves giving back. Engage your child in a discussion about the types of organizations he or she would like to give back to. Better yet, put together a wish list and actually have your child start donating small amounts to charity at an early age. The more you give, the more you receive, as many wealthy people will attest.
- Talk about the stock market. Don’t think your child’s interested in the stock market yet? You might be surprised. Kids like money, and one of the best ways to engage them is to talk about the “magic” of compound interest. (Compound interest is interest that builds on interest.) You could even weave it into a really good story or what sounds like a really good fairy tale. The great thing about compound interest is that it’s not just a fairy tale — it’s completely real! You and your child may even want to come up with a story on your own to demonstrate this magical phenomenon.
- Establish a savings account at a bank. Does your child already have a bank account? Saving at an early age can help kids start practicing smart personal financial decisions. Opening a savings account is a great way to help your child understand the importance of saving. A buildup of money in the account over time will show them exactly how they can afford expensive things they really want later on, such as electronics. You might even want to offer fun deposit incentives. For example, you might treat your child to ice cream every time he or she makes a choice to put money in that savings account.
You may also want to open a Uniform Gifts to Minors Act (UGMA) or a Uniform Transfers to Minors Act (UTMA) account, in which property is set aside for a minor’s benefit. Kids can take advantage of the money in the account when they turn the age of majority in their state. Much like a savings account, it’s fun to see how the money can build in their UGMA or UTMA.
Ages 15 to 18
Even if your child isn’t super interested in business & economics, remember that almost every teen likes money. (You only have to watch your teenage daughter shop online to know that’s the case!) The bottom line is that knowledge of in-depth economic forces isn’t necessary to start preparing your teen for the responsibilities of college, a career and beyond.
- Open a checking account. Your child might be ready for a checking account, particularly if a summer or after-school job has already come into the picture. A checking account is a great way to learn how to manage the money going in and coming out of their account. (Challenge them to never overdraw their account!) Sit down with your child and go over how to manage the account — you may want to periodically check the account as well. Make sure your child is still saving money in addition to putting money into a checking account!
- Teach kids about loans. This is an important concept for a teen to master. It’s important for them to understand that loans are borrowed money that has to be paid back. Every dollar they borrow increases the chance that they’ll pay a lot in interest over the life of a loan. This includes loans for cars, house and especially student loans. Even if your child does not need to apply for a loan now, it’s a good idea to go over how these financial tools work and how to use them as a tool to their advantage later on. This is also a good time to introduce the concept of credit scores, a three-digit number that can help them get loans and even a job. Help your kids understand what contributes to their scores and learn ways to boost it.
- Explain how to invest. There’s no better time to learn about how to invest in the stock market. Kids can (and should!) start investing how to start off with a nest egg for retirement. If your teen earns income from a job, he or she can start investing that money in a Roth IRA. Show your child a compound interest chart and show them how the power of compound interest works. Go over financial safety and monitoring. This part is no fun, but everyone needs to understand fraud, identity theft and how to monitor accounts. Explain to your kids how to protect their online accounts and how to make safe online purchases.
Ages to Talk About Money Management Skills and Investing
Talking about solid money management skills and investing is one of the best ways to help your children learn about basic money concepts. Some common terms you may want to go over with them include the following, plus the most appropriate age to bring it up. Your child may be ready for these concepts at an earlier/later age — just go with your gut!
- Saving: Age 4+
- Budgeting: Age 8
- Loans: Age 10
- Debt: Age 9
- Interest: Age 10
- Credit/Credit Cards: Age 8
- Investments: Age 8
- Stocks: Age 10
- Roth IRAs: Age 15
- Credit Scores: Age 15
Ultimately, you’ll want to show your kids how money can grow. The best way to do that is to outline a number of skills and concepts — as many as you can! — to show them how to make it happen for their own personal finance situation.
Model Good Money Management Skills
It’s also up to you to model good money management skills. You probably don’t want to model maxing out your credit cards every month or falling short on your taxes or mortgage. However, it’s important to remember that even if that does happen, there’s still a lesson in it for your child. Furthermore, nobody’s perfect.
It’s understandable that you may also want to protect your child from every possible financial mistake they might make, but it’s also important to remember that even if they do make a mistake (from flushing $100 down the toilet to not getting started with their 401(k) very soon into their first job) it’s okay. They may make mistakes, and that’s how they learn.
Utilize Learning Resources
There are great learning resources available, so take advantage of those. Check out these learning opportunities on the UNest app. We recently partnered with Zogo to provide interactive in-app education experience that rewards users with money for completing different tasks.
Teach Your Kids About Money
Don’t shy away from teaching your kids about money. Some of the most basic lessons come from postponing needs and controlling urges and understanding the difference between “needs” and “wants.” Finally, always let your child learn the basics of making money. Whether they want to set up a lemonade stand, walk the neighbor’s dog or collect bottles, help them think of some ways to earn money. They’re never too young to learn this lesson! It will serve them well later in life.
Finally, get them interested in saving for their future with UNest.