As adults, we practice money management on a daily basis. Sometimes we get it right, other times we miss the mark. But the more we stay on top of our finances, the easier it becomes to keep them healthy.
Does this make you wonder why we don’t start teaching kids how to manage their money from an early age? Financial planners agree that it’s never too early – or too late – to teach children good money habits. And it all starts at home.
Whether you’re a pro budgeter or you’re working toward financial freedom, there’s a lot you can do to get your kids on the money management train. And it’s a lot easier than you think! This guide will help you kickstart the conversation and make money management part of your family culture.
How to Introduce the Concept of Money Management to Kids
The concept of money management is easy for adults to understand. For children, it’s a more abstract idea. Especially if they’re not used to handling money or making decisions about it.
The best way to introduce this topic is through everyday conversations and activities. Here are some ideas for you to use, depending on your child’s age.
For Kids 5-9
Elementary school kids pick up on every little thing that you do. And they’re eager to learn about money. Why? Because they’ve already figured out that it’s the tool to buy what they want!
Next time you take your child to the store, share the full shopping experience with them. From choosing quality products at affordable prices, to estimating your total and paying at the register. This will make your child feel empowered and will spark questions from them.
Take your time to answer these questions to the best of your ability. If there’s anything you don’t really know, look it up with your child! Many parents find that it’s actually fun to embark on this financial journey with their kids!
At this age, experts also recommend setting up a 3-jar system for your kids. One jar is for saving, one for spending, and the other for giving. This helps introduce three important money management concepts in a visual format that’s easy for kids to grasp.
The jar system also teaches your kids the importance of work ethic. It helps them differentiate wants from needs, and brushes up their math skills. Best of all, you don’t need to have long conversations about these things. They’ll just come up naturally, as your child starts using the jars.
How much your child puts in each jar is up to them. You can offer suggestions and decide as a family. But ultimately, this exercise should encourage kids to make their own money decisions and set up personal goals.
To make it extra fun, you can help your little one decorate their jars. And while you decorate together, you can give them age-appropriate ideas on how to earn money to start filling the jars. Some ways for younger kids to make money include:
- Lemonade stands
- Garage sales
When the jars are full, it’s time to celebrate! Your child will love going to the store to buy that toy they were dreaming of, to open their first savings account at the bank, or to get socks for children in need.
For Kids 10 and Up
Tweens and middle schoolers have a pretty good idea of how to use money. They may already have a savings account and many have started to outgrow the jar system.
Kids’ math skills are also more advanced at this point. By 4th or 5th grade, most kids are comfortable with basic math skills and counting money. They’ve also started learning about percentages at school.
All of this makes your children ready to start learning about investing. And if this is intimidating to you, you’re not alone! Most parents feel the same way. Just remember, you don’t have to be an expert in the topic. And you can always learn more along the way!
A great place to start is by watching videos, reading books, and playing games for your child’s age group. These are fun ways to keep them excited without making money management feel like a task.
If your child shows interest in the stock market, you can open a paper trading account for them to get their toes wet. This will help them feel comfortable with the idea of investing and get a better understanding of how it actually works. Side note: make sure to read our guide on how to teach your kids about investing too.
Children at this age are also very entrepreneurial. They’re connected with what other kids buy and how to market to them. If your child wants to start a business, don’t hesitate to support them.
Sometimes, kids’ businesses take off. Other times, they evolve into a different activity. Both are OK, because they allow your child to learn the basics of entrepreneurship. They become familiar with marketing, customer service, and product quality. They also start to identify the ideas that work and the ones that are less viable.
If your child needs inspiration to make money, these are some popular side hustles for tweens:
- Selling used clothes online
- Car washes
As your child gets older, you’ll want to continue to reinforce the concepts of budgeting, saving, and goal-setting. Continue having conversations about money as often as possible, and consider including them when you make financial decisions.
Smart Money Habits to Teach Your Kids
The more you reinforce smart money habits, the easier it becomes for your kids to grow into savvy adults. These habits include:
- Budgeting your income
- Establishing goals
- Saving for rainy days
- Investing to grow your money
- Paying off debt
- Giving to causes you believe in
Remember that teaching smart money habits is no different than the other good habits you already teach your children. You remind them to brush their teeth every day, but you know they won’t always do it. The idea here is to plant a seed that continues to grow.
What Not To Do
There’s a lot you can do to teach your kids how to manage their money. There’s also a lot you can not do.
No parent is perfect, of course. We all make money mistakes. But, by avoiding negative money habits as much as possible, you make sure your kids don’t repeat them and you also improve your own finances. It’s a win-win situation!
These are some habits that parents can work on eliminating:
- Don’t make finance a taboo subject
- Avoid associating negative feelings with money
- Stay away from impulse shopping
- Curb your credit card spending
- Don’t forget to review your budget on a regular basis
How to Set a Good Financial Example for Your Kids
Again, no parent is perfect. And no one makes good money choices all the time. But when you share your financial situation with your kids, you also gain awareness and feel inspired to set a good example.
These are great money habits to make part of your everyday family life:
- Become familiar with how much things cost
- Discuss big purchases before making them
- Practice comparison shopping
- Review bank statements together
- Stay on top of financial news
- Use credit wisely
- Live within your means
- Make savings a priority
- Set up auto-transfers whenever possible
- Create a plan to reach your financial goals
- Track your progress
- Celebrate your financial wins
Money Management Definitions
As you begin to have more money conversations with your kids, you’ll come across some big words that are new to them. Some of these words may be difficult to explain or new to you, as well. Here are some of those definitions, to help you get started:
- 401(k): An employer-sponsored retirement plan that deducts money from your paycheck to help you save for when you stop working.
- 529: A state-sponsored savings plan that allows parents to set money aside for their children’s higher education.
- Assets: The things you own that have value. This can include jewelry, bank accounts, or vehicles.
- Budget: A plan for how you’ll spend the money that you earn.
- Financial Advisor: A professional who helps understand your finances and creates a plan for you to manage money in a way that allows you to achieve your goals.
- Liabilities: The money that you owe. It includes credit card debt, mortgage, or lines of credit.
- Net Worth: Your assets (the things you own) minus your liabilities (the things you owe).
Best Money Management Books for Parents
Parenting and learning are almost synonymous. When you’re raising kids you’re always trying to find ways to improve yourself, teach them from your mistakes, and stay on top of your game. These are our favorite books to guide your financial journey as a parent:
For New or Expecting Parents
When a little one comes along, parents start asking themselves new financial questions. With The Wall Street Journal. Financial Guidebook for New Parents, you can transition into your new role as a parent and start planning for the next phase of your life as a family.
To Read with Young Kids
Got a little entrepreneur at home? Read Isabel’s Car Wash with them! They’ll learn about earning money, running a business, and even how to find funding for their projects. It’s a great read that helps parents introduce the idea of saving for a goal and managing debt.
To Read with Older Kids
Go! Stock! Go! is a fun storybook that makes it entertaining for families to learn about investing together. This practical, easy to read book also helps parents brush up on their knowledge of the market. It’s a great starting point for kids who are interested in investing.
Listen While You Drive
Audio books are great for busy parents who spend a lot of their time commuting. They’re also an easy way to introduce kids to new concepts while you drive them to soccer practice! Raising Your Money-Savvy Family for Next Generation Financial Independence is a great listen for the entire family. It’s not just a parenting manual. It’s a book full of stories and ideas for you to try at home.
Learn Alongside Your Child
You don’t have to be a money wiz to raise financially smart kids. If you want to bond with your child over financial education, reach for Make Your Kid a Money Genius (Even If You’re Not). It’s the best way to create generational wealth and take control of your own personal finances.
Financial literacy is a lifelong experience. By teaching your kids how to manage their money, you create healthy habits from an early age. And these good practices become the knowledge and emotional toolkit that allow kids to unlock their financial potential as adults.
Related Reading For Your and Your Kids
- How to teach kids about money 101
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- How to teach earning money to your kids
- How to open a bank account for your kid
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