Teaching kids to save money

Money management for kids is a vital skill that is often overlooked in the education of our children. Teaching them financial habits when they’re young can help them build the foundation for future financial decisions and practices. By teaching kids about money early on, you can provide them with the tools they need to become financially responsible adults.

How to teach kids about money

Here are some tips about money management to help teach your kids:

Understanding needs vs wants

Help children understand the concept of needs vs. wants. Needs are the basics like food, clothing and shelter. And wants include things that are nice to have but are not essential. By teaching children this difference, they can begin to make informed decisions about how to save and spend their money.

Earning money as a kid

Provide opportunities for them to earn money. This could be through a weekly allowance, tasks around the house or a small job like helping with lawns in the neighborhood. These opportunities not only provide them with the funds to practice money management but also teach them the value of hard work.

Opening a savings account

A savings account for your kid can serve as a practical tool that demonstrates the concept of saving and interest. Children can watch their money grow over time, which encourages them to save even more. If a savings account is not an option, using a clear jar or a piggy bank to put money away and save can be a good place for kids to start.

Tracking spending and setting financial goals

To help ensure effective money management for kids, teach them to track their spending. This can be done through keeping receipts, using a notebook or even a budgeting app designed for kids. By tracking their spending, children can see where their money goes and identify areas where they can save.

In addition, by seeing where their money goes, it can also help children plan for what to do with it. Some examples may include using their money for going out with friends, spending it on vacation, saving for college or donating some to charity.

Learning from mistakes

It's important to allow your kids to make mistakes with their money. They may buy something on impulse that they regret later or spend all their money without saving any. These experiences can serve as valuable lessons in money management. As a parent, guide them through their mistakes and discuss what they learned and what they can do differently next time.

Talking about money

Regularly talking about money with your kids can help remove many misconceptions and fears about finances. Discuss your household budget, costs of living and the importance of saving and investing. When kids understand how money works, they can make more informed decisions about their own finances when they are older. Also, don’t be afraid to talk about financial struggles. Including them in conversations about how to cut extra expenses or how to reassess things they may want but may not need, will be a good lesson to learn as a family.

Setting an example for how to handle money

Set a good example for your kids about money. Demonstrate responsible financial behavior by managing your budget, saving regularly, contributing to your retirement and making smart spending decisions. Be a financial role model for your kids by making savvy financial decisions.

Teaching about credit and debit cards

In today’s world, credit and debit cards are used as much — if not more than cash, to pay for daily life transactions. Talking to your kids about what they are, how they work and that most credit cards charge interest, can help kids use them more wisely when they have their own.

Look for more teachable moments

Put your discussions into action by letting them apply those skills through real-world application:

• While shopping, pay for one purchase with cash and the other with a card. Explain that the credit card is not free money, and you'll have to pay the bank back later.
• If your child asks for an advance on their allowance, explain they'll have to pay it back by a certain date, just like you do with your credit card.
• Work together on ways to help trim expenses, like making pizza instead of ordering out or building a snowman instead of going to a movie.
• If your child makes their school lunch the night before, let them keep the lunch money.

You can also help children follow investments by reviewing account statements with them, showing them how to do financial research on the Internet and answering their questions about money. If you get them interested early on, they'll have skills they can use for a lifetime.

Now that you have learned different ways to teach your kids about money management skills, you may want to read about teens and credit, money management tips for teens or the danger of child identity theft.