What/How to Teach Your Kids About Money Management

teach kids about money management

Money management is a fundamental life skill that is often overlooked in schools and formal education. Typically, children will learn about money management either from their parents or on their own, rather than through any organized curriculum. Because financial know-how will eventually touch nearly every aspect of their lives, children should learn early on how to handle money. From saving and spending to investing and the use of credit, “money management” covers a wide array of topics. Introducing different aspects of handling money over time can make things easier for young minds to digest, translating into a greater likelihood that they will adopt those principles as they grow up.

Teaching About Savings

With an ingrained savers ethic, your kids may think it’s only natural to have savings on hand for the rest of their lives. One way to get your kids to set aside some of their money early on is to make a habit out of it. For example, when your kids get money from a gift or an allowance, have them automatically save a certain percentage of it. If you make saving a normal process, your kids might not feel as if they are “giving up” some of their money. “One trick I use is to bring my kids with me when I make a deposit at the bank,” says Lu Costigan, mother and sales manager at COOLA Suncare. “When they see that saving is a part of my everyday life, my hope is that they understand how important it is for the future.”

Teaching About Spending

“Saving is only part of the equation in our household,” Costigan continues. “I stress every day to my kids how spending can get you in a lot of financial trouble, and that you always have to follow a budget.” Jeff Gonzalez, father and CPA based in Los Angeles, agrees: “My kids wouldn’t understand a formal budget, but they do understand that when their money’s gone, it’s gone.” When it comes to your kids, the simpler you can make it, the better. By limiting them to the amount they receive for their weekly or monthly allowance, for example, you’ll reinforce the point by that they won’t have any more money until the next “pay period,” just like in the real world.

Teaching About Investing

Younger kids may be able to grasp basic concepts of saving and even budgeting, but investing principles are probably best reserved for older children, perhaps in their teens. However, with the prevalence of financial media around them, even younger kids might have questions about things they see or hear on television, for example, so you should be prepared early with a basic investment talk. “Risk and reward are too advanced for my kids to understand,” says Costigan, “but they see me save and invest and I explain that they can have more of the things they like in the future if they don’t spend it now. I think they can relate to that.” When older kids begin to learn mathematical concepts like interest and percentages, that can be the perfect bridge to introduce them to investment concepts.

Teaching About Credit

Perhaps the most difficult financial management concept for kids to understand is credit. Since it has the potential to create all sorts of financial problems, it may be the most important one for them to master. “Just like with budgeting,” Gonzalez continues, “you have to lead by example when it comes to teaching about credit.” Paying cash whenever possible can reinforce the concept to your kids that you should buy things only when you have the money. If you do use a card, explain that it’s just a convenience, but you have the money at home to pay it off. You might not even want to entertain the notion that borrowing on a credit card is an option, until your kids reach 18. By the time they are old enough to legally have their own credit cards, they will be in a better position to understand the problems of high interest rates and fees on cards.