How to Teach Kids About Money
- Reviewed by: Chad Seegers, CRPC®
- May 9, 2023
Teaching kids about money is crucial to equip them with the knowledge and skills to manage their finances effectively. It also helps them develop healthy financial habits and make informed decisions about their money in the future. Children who learn about money at an early age are more likely to become financially responsible adults. Topics to cover when teaching your kids about money include basic concepts such as earning, saving, spending, and investing. It can also involve discussions around budgeting, debt management, and the importance of setting financial goals. Overall, teaching your children about money is an investment in their financial well-being.
Reasons to Save Money for Your Kids
There are several reasons why parents may start saving up money for their children. One reason is to help cover the costs of their education. College tuition and fees can be expensive, and starting a college fund early can help alleviate the financial burden that comes with paying for higher education. Another reason is to provide a financial cushion for their children as they navigate the uncertainties of adulthood. Having some savings can help them in times of need, such as unexpected medical expenses or job loss. Additionally, parents may want to pass on their wealth to their children as a way of providing them with a secure financial future. By starting to save up money for their kids early on, parents can ensure that their children will have the financial resources they need to pursue their goals and dreams.
When They're Young
1. Teach the Value of Money
Teaching children the value of money when they are young is crucial because it lays the foundation for a lifetime of good financial habits. When children understand the importance of money and how to manage it wisely, they are more likely to make informed decisions about their finances as they grow older. It also helps them develop a sense of responsibility and independence, as they begin to make their own financial choices. Furthermore, teaching children the value of money helps to instill a sense of discipline and delayed gratification, as they learn to prioritize their needs and wants.
2. Encourage Saving
Encouraging kids to save money can be done in several ways. One way is to provide them with a piggy bank or savings jar where they can deposit their money. Parents can also incentivize saving by offering to match a portion of their child’s savings or rewarding them for meeting certain savings goals. Another way is to involve children in the family’s budgeting process, so they understand the importance of saving and how it fits into the overall financial picture. It is important to encourage kids to save money, as it helps them to develop good financial habits that will serve them well into adulthood. Saving money teaches them the value of delayed gratification, the importance of setting goals, and the benefits of responsible financial planning. It can also provide a feeling of security and empowerment, as they learn to manage their own finances.
3. Introduce Them to Investing
Introducing young children to investing can be done in a few simple ways. One way is by explaining the basic concept of investing, such as buying a share of a company’s stock. Parents can use examples of companies that children are familiar with, such as Disney or McDonald’s, to make the concept more relatable. Another way is to involve children in investing decisions, such as having them help choose stocks to invest in or researching potential investments together. Parents can also use apps or websites that offer simulated stock trading games to teach children about investing in a fun and interactive way. It is important to introduce children to investing at a young age, as it helps them to understand the importance of long-term financial and investment planning and to develop a sense of responsibility towards their own financial future.
When They’re Teens
4. Encourage an After -School Job
Encouraging teens to get an after-school job is an excellent way to teach them good money practices. Parents can start by discussing the benefits of having a job, such as earning their own money and gaining valuable work experience. They can also help their teens find job opportunities that align with their interests and skills, such as working at a local bookstore or restaurant. It’s important to emphasize the importance of budgeting and saving a portion of their earnings for future expenses, such as college or a car. Parents can also involve their teens in family financial planning, such as discussing household expenses and creating a budget together. By encouraging their teens to get an after-school job, parents can help them develop valuable financial skills.
5. Introduce Them to Credit
Introducing teenagers to credit can be done in a few simple ways. Parents can start by explaining the basic concept of credit, such as borrowing money that must be paid back with interest. They can also discuss the different types of credit available, such as credit cards, loans, and mortgages. Parents can use examples of responsible credit use, such as paying bills on time and maintaining a good credit score. It’s important to emphasize the importance of responsible credit use, such as avoiding excessive debt and making payments on time. Introducing teenagers to credit can be helpful for their future, as it helps them to understand the importance of building good credit history, which can impact their ability to get approved for loans and credit in the future.
6. Consider a Roth IRA
Opening a Roth IRA for your teenage child can be a smart investment in their financial future. A Roth IRA is a retirement savings account that allows the earnings to grow tax-free, and withdrawals made after age 59 1/2 are also tax-free. By starting a Roth IRA for your teenager, they can benefit from the power of compounding, where their contributions and earnings will continue to grow over time. It also allows them to start saving for retirement at a young age, giving their savings more time to grow. Furthermore, contributions to a Roth IRA can be withdrawn tax-free and penalty-free at any time, which can be helpful if they need the funds for a major expense or to help pay for college. A Roth IRA can be an excellent tool for building long-term wealth and a valuable asset for your teenager’s financial future.
When They’re Young Adults
7. Help Them Set a Budget
Working with your young adult child to help them set a budget can be done in a few simple steps. First, you can sit down with them and discuss their income and expenses, helping them to identify their monthly bills and any other regular expenses they have. You can then help them to prioritize their spending, distinguishing between essential expenses, such as rent and utilities, and discretionary spending, such as entertainment and dining out. Once their expenses are identified, you can work together to create a realistic budget, ensuring that their expenses do not exceed their income. By setting a budget, you can help them to develop good money management habits, such as tracking their spending, living within their means, and planning for the future. It also teaches them to be accountable for their own finances and empowers them to make informed decisions about their money.
8. Encourage Them to Invest
Encouraging your children to invest can be done in a few ways. Parents can start by discussing the importance of investing for long-term financial growth and the various types of investments available, such as stocks, bonds, and mutual funds. Parents can also help their young adult children to research potential investments and review their investment options together. Additionally, working with an investment manager can be beneficial, as they can provide valuable advice and guidance on investment strategies and help manage their portfolio to achieve their financial goals. Investment managers can also provide education on financial planning and investment risk, helping young adults make informed investment decisions that align with their personal goals and risk tolerance.
9. Practice What You Teach
Practicing what you teach to your adult children about personal finance is essential because it sets a positive example for them to follow. Parents who consistently demonstrate good financial habits, such as living within their means, saving for the future, and investing wisely, can help their children develop the same habits. Children often learn by observing and modeling their parents’ behaviors, and personal finance is no exception. By practicing what you teach, you can reinforce the importance of responsible financial behavior and show your adult children that it is possible to achieve financial success by following sound financial practices. This can help them to better manage their finances in the future and make informed decisions about their money. Leading by example, parents can instill valuable financial habits in their adult children that will benefit them for a lifetime.
Teaching your children about personal finance and helping them develop good money habits at a young age can be incredibly valuable. From setting a budget to investing and saving for the future, there are many ways parents can guide their children on the path to financial success. Encouraging them to take an active role in managing their money, working with a San Ramon, CA or Houston, TX investment manager to help grow their wealth, and leading by example can all play a crucial role in their financial well-being. At Insight, we understand the importance of developing a customized investment strategy that aligns with your family’s financial goals. Our team of experienced professionals can help you and your children navigate the complex world of finance and build a strong financial foundation for the future. Contact us today to learn more about how we can help you and your family manage and grow your wealth.
Reviewed by,
Chad Seegers, CRPC®
Chad began his career with Sagemark Consulting in 2005 and then became a Select member of Sagemark’s Private Wealth Services which operated as a national resource for financial planners focusing on Advanced Strategies in the High Net Worth marketplace. Chad then began his partnership with Insight Wealth Strategies in 2013 focused on retirement planning primarily with Oil and Gas employees and executives. His primary areas of expertise are retirement, estate, and investment strategies as he serves as Investment Strategist for the financial planning team.
Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.
Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
