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Kids and Money: An Introduction

Teaching kids about money management is crucial for helping them grow up successfully—but talking about money can also be very difficult for parents. How do you teach your children and teenagers to earn, save, give, and spend well when they’re bombarded with conflicting messages on how to responsibly use their money? And in a country in which earning and spending habits are intensely personal, how do you bring up the topic of kids’ money management in the first place?

Did You Know?

  • The average financial literacy score for high school students is an F. This score has fallen to its lowest level ever.1
  • While 75 percent of adults say it’s important for adults to give financial guidance to children and teenagers, only 36 percent of adults actually do so.2
  • Teenagers’ financial literacy increases significantly when they go to college; however, only 25 percent of Americans graduate from college, leaving 75 percent ill-equipped to make financial decisions.3
  • The more Developmental Assets that kids have, the more likely they’ll make smart money management choices. While 72 percent of young people who have 31 to 40 Developmental Assets save money, only 27 percent of young people with 10 Developmental Assets or less save money.4

Fortunately, you can improve your kids’ personal financial literacy by teaching them key financial skills, talking about money and the values that guide money decisions, and giving them opportunities that help improve their money management skills both now and in the future. It can be difficult to start, but you’ll be doing a great service to your children by talking to them about money and helping them develop into financially savvy consumers.

Frequent Questions and Concerns about Kids and Money

How can I prepare my child to make good decisions when it comes to credit cards?

Kids using credit cards can be a scary proposition for a parent, so it’s important to begin teaching your kids about money management when they’re young. While you don’t want your child to get in the habit of spending money he or she doesn’t have, it can be very beneficial to occasionally make small loans to your child. Once your child has “taken out a loan,” talk with him or her about paying off the balance in a reasonable amount of time, not taking out any more loans until one is paid off, and not making unnecessary purchases while he or she still owes you money. Explain to your child that every purchase made on a credit card is like a loan, and continue to stress the importance of not spending money he or she does not have. You can find many helpful personal financial literacy resources in this section’s Summary and Next Steps page.

Our family has a small income and a very tight budget. How do I help my child deal with the things we don’t have?

You may not realize it, but living with limited money is a valuable life skill. Children learn many useful personal financial literacy skills from parents who work hard to make ends meet. Instead of just saying “no” or hiding the fact that you cannot afford something, teach your child the smart ways you have learned to stretch your dollars. Show your child how to use thrift stores, garage sales, coupons, and clearance racks to get things for less. Point out the difference in price. Explain how you make decisions about “needs” versus “wants.” Talk about money with your kids.

I’m not very good with money myself. How can I teach my child when I have trouble on my own?

If your family struggles financially, the best thing you can do for your child is to set an example. Avoid saying things that make your child worry about your family’s well-being, but talk about the ways you are trying to solve problems and improve your personal financial literacy. Start a savings account. Talk with a financial adviser if you have a large amount of debt. Be honest with your child about any past decisions you regret and the wiser decisions you are making for the future.

My child doesn’t seem to have any concept of saving or spending—how can I get through to him and teach him good habits?

Many children and young teenagers—especially before they get their first job—have difficulty with financial planning. One of the best ways to teach kids about money is to assist them in developing a budget. Keep track of all money coming in and going out, as well as where it comes from and where it goes. Decide on a percentage of income that should be set aside for charitable giving, as well as a portion for savings. Talk to your child on a weekly basis about his budget and help him stick to the percentages you’ve decided upon.

Should I encourage my teen to get a part-time job? Will working distract her from school and friends?

Getting a part-time job can be a very valuable experience for a teenager, and is a great way to teach kids about money management—but it can also add another level of stress to an already busy life. If your child decides to seek out a part-time job, support her decision, but be sure to emphasize the importance of school and friends. Helping your child prioritize school, work, friends, and family time (as well as spending, saving, and giving) will go a long way in creating personal financial literacy and a balanced life.

Volunteer work can also be beneficial for teens, as it can help them develop a sense of pride in their work, gain hands-on work experience that can be placed on a résumé, and give them a chance to begin building a professional network.

See Serving Others for more information on volunteering.

I don’t want to pay for all of my child’s “fun” expenses, but he’s too young to get a job. How can he earn some spending money?

Just because your child is too young to get a part-time job doesn’t mean he can’t make some money. You can have him do odd jobs around your home (like washing windows, doing yard work, helping you paint a room, or cleaning the closets) for some extra cash. Many children are also able to do work around the community, such as helping seniors with their daily tasks or working for a local faith community once a week. Small jobs like these will allow your child to earn money without requiring a lot of time, and you can use this as an opportunity to encourage your child to learn about personal financial literacy and practice good saving and spending habits.

What should I tell my children if they ask how much money I make?

The answer to this question varies for each family. Some parents highly value talking about money and are very open with their children regarding how much they make, while others prefer not to share this information. Whatever you decide to do, it’s important to decide on what you will do before this question comes up. Think about what you’d like your child to know, and talk with your parenting partner about what he or she feels comfortable with. Agree on a way to address the question if and when it is raised.

Teaching Kids about Money Management

In addition to talking about money management with your children, it’s also important to teach them by example. Kids are very observant, and pick up on what their parents do and say, so be sure to set a good example when you’re dealing with money. Make it a point to teach your child not only by what you say, but also by what you do.

Talking about Money and Teaching by Example

  • Make a budget, and stick to it. If you have to cut back on some things, let your kids know that it’s because those things don’t fit in your plan for the month (or week, or year, depending on your budget). Talk about money-related decisions that you have to make based on your budget.
  • Practice good spending habits, such as comparing prices before you make a significant purchase. Stop at several stores to see where you can get the best price, check out store ads in the newspaper, and use any coupons or discounts you have available. Ask your kids to help you make the best decisions, talk about money management skills with them, and help them understand your spending practices.
  • Teaching kids about money includes spending, saving, and sharing. Set aside money from your own earnings for savings and donation. Kids may think they should keep all of their money for themselves, and showing that you care about helping others sets a powerful example. Decide on a percentage you will give each month to a nonprofit organization, school, or other charitable cause.
  • Don’t use your credit card to purchase things you can’t afford—this can be an especially appealing (and dangerous) money management practice for teens. Exceptions to this rule can be made in cases of emergency; if you don’t have the money for an emergency purchase, be sure to have a plan to pay off your bill in a timely manner to avoid interest charges.
  • Giving them small loans is one of the best ways to teach kids about money management. Although it’s helpful to teach kids that they cannot spend more than they have, it’s also helpful once in a while for your kids to borrow money from you and then pay it back on a regular basis. For example, if your child wants to buy a bicycle, have her save up a certain amount for a deposit and then figure out a payment plan (and stick to that plan every step of the way) until it is completely paid off.
  • Encourage your kids to save both in the short term—for things like a new bike or a concert ticket—and in the long term, for expenses like college tuition or a car. Having a savings goal makes the budgeting process more real and tangible.
  • Remember that your children learn from all members of your family, whether they’re talking about money or not.. Make sure everyone is practicing good saving and spending habits to reinforce the messages you’re sending to your kids.
  • Keep teaching your kids about money management, no matter their age. Go to the Summary and Next Steps page to find relevant resources for young children, tweens, and older teenagers.

Like anything else, financial literacy is best taught by intentionally setting a good example around your children. If your kids see you and other members of your family making well-informed, well thought-out, and responsible decisions about money throughout their childhood, they’ll be much more likely to make good decisions themselves. Make it a point to set a good example around your kids—and don’t forget to talk about money management with them to reinforce these ideas!

Parenting in a Recession

The current economy is in rough shape; prices are up, salaries are down, layoffs are common, and everybody’s talking about money. And parenting is expensive. So how do you make sure you have enough money to support your family? This is when personal financial literacy skills really come in handy. Use some of the tips below to help you maintain your financial footing in tough times.

Personal Financial Literacy Tips for Parenting in a Recession

  • Don’t buy (and encourage others not to buy for you) a lot of new clothes or toys for your babies or very young children, as they will be outgrown in a matter of months. Many people are willing to donate old baby clothes and toys to friends or acquaintances, and you can also find a large number of these items at places like thrift stores or garage sales.
  • Maximize your available time, energy, and skills by trading services with friends or family for such needs as childcare, meal preparation, or house cleaning. This is also a great way to build a network of caring adults and a close-knit community. Talk about money management within this network and help each other out when you can.
  • Take advantage of places like consignment and second-hand stores. If your child needs sports equipment, toys, or certain articles of clothing, you may be able to get a really good deal if you shop around for used items.
  • Some schools offer prepackaged school supply kits at a discounted price, and often use the proceeds to fund classroom activities and other needs. Many congregations, food pantries, and local service groups also collect school supplies to donate or sell at affordable prices. Find out if your community has programs like this, and take advantage of them if possible.
  • Even though it can be tough, talking about money management with your kids is more important now than ever. There are many lessons that can be learned during a recession, so take advantage of opportunities to increase your kids’ money management skills and personal financial literacy.

During an economic downturn, families may find that they struggle with their finances. But through careful planning, talking about money, and prioritized spending, many families have been able to not only make it, but thrive through these tough economic times. Don’t forget to stay positive, even if it gets difficult—by using your personal financial literacy skills, you’ll also be teaching your child the necessary skills that he or she will need in the future.

Talking with Your Kids about Money

In some families, talking about money can be more uncomfortable than talking about sex.1 Because money is a very personal matter, many parents don’t know how to approach it (and some avoid the topic altogether). By starting the discussion early, you can make it easier to talk about this tough topic later, when your child is making larger purchases, thinking about getting a job, or beginning financial planning for college.

  • Talk with your children about how you make spending choices based on more than just affordability. For example, if a child asks for a toy you think is overpriced, explain your values by saying, “We’re not going to spend our money that way because…” or “It’s not a good value because…,” rather than just saying, “It’s too expensive,” which may give the impression that you would buy it if you could afford it.
  • Take advantage of financial literacy resources for kids, such as Disney’s The Great Piggy Bank Adventure, an online game that teaches children the basics of financial planning, including setting goals, saving and spending, and diversification. After playing the game, ask your child what he has learned and how it could be applied in real life.
  • Bring your kids with you to the bank. If you’re making a deposit in a savings account, talk about the importance of saving “for a rainy day.” If you’re refinancing your mortgage, you have an opportunity to discuss the concept of interest and the importance of paying off loan balances quickly. When you’re taking out a car loan, talk about how loans allow you to pay for things that you don’t have the money for, but you end up paying more in the long run.
  • If you are facing financial difficulty, be honest with your children. You don’t need to worry them with all the details, but it is helpful for them to learn that money isn’t magical. It doesn’t appear when you want it to. Invite them to be creative in coming up with ways to save money and to join you in making decisions that are within your means.
  • Many kids—especially young ones—have difficulty differentiating between wants and needs. When your child says she “needs” something, ask if she really needs it, or if she just wants it. Sometimes purchases are necessary (like winter boots for cold climates), but many times, they’re just to satisfy a want. Make sure your child understands the difference, and start paying attention to what you’re saying and the example you’re setting—for example, do you really need an expensive cup of coffee to get you through the morning?
  • When you’re out shopping, talk with your kids about why you make the purchases you do. Are you influenced by advertising? Pricing? The quality of the product? How do you choose one product over another? Help your child start thinking carefully about making purchases.
  • Discuss with your children the choices you make with your money. For example, how does your caring for others impact how you save, spend, and give money away? Why do you sometimes wait to make certain purchases? What does it mean to you to be responsible with your money? It takes many years of observation—and good examples set by their parents—for kids to figure out how they feel about these issues, but it’s good to get them thinking early by talking about it.
  • Many financially savvy practices, such as buying secondhand, donating old clothes to a thrift store, and reusing and recycling goods, are also good for the environment. Point out that not only are you saving money by doing these things, but you’re also taking action to help preserve the environment.

It can be very difficult to bring up the topic, but it’s in your child’s best interest to start talking about money early. The sooner you can start talking to your kids about making smart financial decisions, the easier it will be for them to make those decisions when it comes time to make them on their own.

Kids and Jobs

Most kids, when they reach a certain age—usually around the middle teen years—will start thinking about getting a part-time job. Whether or not your financial situation requires that they earn money, teenagers can improve their personal financial literacy and gain valuable experience in the working world by getting a job. It also encourages your child to learn good financial habits as well as develop a sense of responsibility. In addition, it gives you a great opportunity to teach your kids about money management.

Jobs, Money, and Teenagers

  • Teaching kids about money management includes saving, sharing, and spending, so when your child gets a job, sit down with him and decide on a percentage of his wages he will put into a savings account, and a percentage he will donate. Starting this early will help him remember to save and give in the future.
  • If you haven’t yet, help your child open a bank account. Explain the difference between a checking account and a savings account. If you set up direct deposit, help your child pay attention to the way the balance changes on payday.
  • Remind your kids that even though working and earning money is important, so are family, school, and friends. Creating a balance among these different parts of life is one of the most effective ways that part-time jobs teach kids about money and time management.
  • Although it’s good to provide help and direction in financial matters for your older children, it’s also important to let them make their own decisions. You can make observations and suggestions, but remember that allowing older teenagers to manage their own money is one of the best ways that you can teach your kids about money management.
  • When it comes to money, teenagers aren’t the only ones interested. If younger children want to earn money, recommend that they do jobs around your home or the community (raking leaves, washing windows, or babysitting) to earn some extra cash. In this way, they’ll be able to make money as well as learn the value of working for income without having to get a part-time job.

Getting a job is a big step in a child’s life, and it’s a great introduction to personal financial literacy for teens. And by helping your teen make good decisions about employment and teaching her or him necessary financial skills, you can make sure that he is prepared to enter the workforce and begin making smart choices when it comes to finances.

Kids and Money: Summary and Next Steps

It can be difficult to raise kids with sound financial skills, especially in a culture that urges all individuals to “spend, spend, spend!” Encouraging your child to be smart about earning, saving, and spending will help her or him make sound decisions about finances and develop a sense of financial responsibility. Finding a balance between guiding your children and letting them take control of their own finances is something that comes after years of practice, but it is well worth taking the time to do. With adequate education, you can be sure that your child will have the skills and knowledge to navigate the complicated world of personal finance.

Books Available from Search Institute

Other Useful Web Sites

  • BankIt — Search Institute and Capital One have partnered to create an educational resource for both teens and parents. This site contains a great deal of interactive, useful information for people of all ages.
  • Teens and Money — Consumer Action’s training series offers useful materials, including booklets and presentation slides in several languages, for parents and caring adults to use in teaching teens about finance, including budgeting, banking, saving, credit cards, and more.
  • MoneyWi$e — This site contains a large assortment of multilingual, educational information on finance topics like building good credit, banking basics, and identity theft and fraud protection.
  • ShareSaveSpend — Nathan Dungan offers a variety of educational resources and programs fit for individuals, families, or groups, as well as speaking engagements. You can also sign up for the ShareSaveSpend newsletter to receive valuable financial tips in your inbox every month.

More Books You May Like

  • Raising Money Smart Kids — Written by Janet Bodnar, Kiplinger’s Personal Finance editor, this book will help you teach your children valuable financial skills that will help them throughout the rest of their lives.