As parents, we know that financial literacy for kids is critical. But how do we get started? Which topics should we teach, and when? In this post, I'll answer these questions by sharing ten ways to build good money habits in your kids.
The tips and ideas below will cover a wide range of financial topics for just about every age and stage. I hope they'll help you discover new ways to teach your kids about money. But before we dive into the tips, let's first define financial literacy.
What Is Financial Literacy?
Financial literacy means having the knowledge and skills to manage your money successfully and confidently. Broadly, that means knowing how to:
These concepts are big and complex and maybe too much for kids to understand all at once. That's why it's so important to start teaching financial literacy from a young age. Early financial literacy gives your kids as much time as possible to learn and internalize the skills you'd like to impart to them.
Financial Literacy for Kids: 10 Effective Ways To Build Good Money Habits
Now that we've defined financial literacy, it's time to get into the tips. Here are ten ways you can start building good money habits in your kids today:
1. Model Good Money Habits
Children constantly observe and learn from people and the world around them. Therefore, one of the best ways to instill financial literacy in kids is to model good money habits.
But what does this mean? It means, first of all, smashing the taboo of talking about money. Instead, show your kids how you save, spend, invest, track, budget, and so on. Talk openly and often about your finances, using the ideas in this post as starting points.
Over time, your daily modeling of good money habits will lead to your kids internalizing these crucial skills. I call it financial literacy by osmosis; your kids will slowly and naturally absorb money lessons from you through everyday interactions. It's simple, easy, and very, very effective!
This is how my husband, our siblings, and I learned good money habits from our parents. (No YouTube videos, online courses, or parenting books required.) All of us grew up to be successful with our money—despite differences in our personalities and spending preferences.
However, keep in mind that perfection isn't the goal. Sharing your money mistakes can be just as valuable. This helps your kids see that mistakes are typical and nothing to be ashamed of. They'll also learn that mistakes can be important lessons that enable future success.
2. Teach Your Kids How To Save
One of the most basic money skills kids can learn is how to save money. For the youngest of kids, it works best to do this in a tangible, tactile way. A fun way to do that would be to pick out a piggy bank together, then deposit money they earn, find, or receive.
Young kids might enjoy starting with a classic ceramic piggy bank. It's fun for them to drop coins in the slot, hear the sound of the coins dropping in, then pick up the piggy bank to feel how full it's getting.
Slightly older kids may want to graduate to a clear plastic piggy bank with a lid that counts the coins they drop in. This is an excellent way to learn the value of different coins and visually see their savings grow.
Eventually, as your kids accumulate more money, it may be time to upgrade to an even bigger piggy bank—a savings account. For that purpose, there are two options to consider:
Youth Savings Account
Youth savings accounts allow kids to experience having their bank account, statements, and debit card. All of this can give them a sense of ownership, pride, and independence (not to mention providing learning experiences).
Parent's Savings Account
For more significant amounts of savings, parents may want to consider shifting some of the child's excess cash to one of their own savings accounts.
This is what I do with my kids' spending money; two of my high-interest savings accounts only hold their money. By doing this, my kids earn a much higher interest rate than they would in a youth savings account.
However, to ensure they still take away some learning, I review their balances with them regularly to see the impact of their saving and spending.
3. Teach Your Kids the Basics of Investing
Kids can start learning the basics of investing from a surprisingly young age. Here are some age-based ideas for how to instill investing knowledge:
Basic Concepts (4–8 years old)
- Point out public companies they're familiar with (e.g., Disney, Mattel, Apple).
- Explain how regular people can buy a tiny piece of those companies.
- Give a very simple primer on how the stock market works.
Intermediate Concepts (9–13 years old)
- Explain what an index is and the main indexes they'll use when investing.
- Tell them about index funds and ETFs and how they work.
- Show them how, over the long run, the markets always go up.
Advanced Concepts (14 years old and up)
- Explain what a discount brokerage is and how to choose a good one.
- Teach them how to buy and sell stocks and ETFs.
- Open a paper trading account for them to practice trading.
4. Help Your Kids Start Investing
Eventually, your kids will be old enough to manage their investments. But you don't have to wait until then to put their money to work. You can get them started with an investment account much earlier—perhaps as soon as they have some extra birthday or holiday money.
However, since minor children are not permitted to open and manage investment accounts, you'll have to open a particular account and invest on their behalf. In the US, these accounts are known as custodial accounts, and in Canada, they're known as informal trusts.
Once the account has been opened, use the tips in the previous section to teach your child how to invest—right in their account! Over time, they'll be able to watch their investments grow (while also building their confidence in investing).
When they reach the age of majority, they'll legally be able to manage their investments. This may seem risky, but you can rest easy since your child worked right alongside you to grow the investments.
Because of the hard work you and they put in over the years, your child will be more likely to care for the investments once they're in complete control.
5. Go Shopping Together
This seems completely counterintuitive, right? How can shopping with kids teach them to be good with their money? Well, unless your kids plan to live off-grid in a cave, they'll eventually need to spend money. So, why not teach them the skills to do it wisely?
One of the best ways to do that is to take them shopping with you. You can then weave in financial literacy lessons by showing them how you spend less on the things you need to buy. Here are some ideas:
Take Advantage of Discounts
One of the key ways to save money when shopping is to buy things on sale or at a discount. That means using apps like Flashfood to buy heavily-discounted groceries or shopping from clearance racks at clothing stores. Afterward, do the math with your kids to show them how much you saved with the discounts.
Pay Attention to Unit Prices
Kids may not realize that a cheaper price tag doesn't always mean they're saving money. Show them how important it is to compare unit prices of items when there are similar items to choose from. In doing so, they'll realize what seemed to be the cheaper item is more expensive.
Compare Brands and Prices
Another great way to save when shopping is to compare the prices of name brands versus store brands. Most of the time, store or generic brand items will be significantly cheaper, with no loss in quality, taste, or usefulness.
These are just a few ideas to help you turn shopping trips into financial literacy lessons. As you shop, think of all the other tactics you use to spend less, and share them with your kids.
6. Encourage Delayed Gratification
I firmly believe that being able to embrace delayed gratification is foundational to becoming successful with money. Through delayed gratification, kids learn to:
- Develop a long-term mindset.
- Make money decisions thoughtfully.
- Avoid impulse spending.
Try the below ideas to help your kids learn to delay gratification:
Do the Marshmallow Test
Initially, get your kids to do the marshmallow test without any explanation about its purpose. This allows you to establish a baseline for how patient your kids are.
Next, do the test again, but explain what the test is for and what waiting for the extra marshmallow teaches them. Finally, apply the same principles to encourage waiting for new toys, screen time, bonus allowance, etc.
Use a Wishlist
Instead of saying no to a new purchase, tell your child to add the item to their wishlist. (This can be a note on your phone.) Family and friends can then use this wishlist for gift ideas for the child in the future. Or, have a cool-off period where the child has to wait X number of days to think about the purchase before committing to it.
Show Them the Power of Compounding
Demonstrate the power of compounding using interactive calculators and charts. This allows kids to understand the power of waiting and letting their money grow. In turn, it helps them to crystallize the concept of delayed gratification—and how it leads to actual (and amazing) results.
An added benefit of all this delayed gratification ‘training' is that it will also serve your kids well in other areas of their lives. Patience, perseverance, and thoughtfulness are critical to success at school, sports, work—and even relationships.
Embracing delayed gratification could very well be the one master skill to rule them all!
7. Discuss Financial News and Current Events
Now more than ever, our kids are inundated with information from every direction. It's all too easy for them to be pulled into the latest fad, trend, or tactic.
Whether we like it or not, our kids will be exposed to financial news and current events anyway—so why not use these events to increase their financial literacy?
You can do this by:
- Observing what they're taking in.
- Steering the narrative in a healthier direction.
- Breaking down the headlines in age-appropriate ways.
- Explaining the whys and hows behind the stories.
Below are some recurring talking points you can use in your discussions with your kids—no matter the current financial frenzy.
Whether it's people piling into the latest meme stock, hot investment trend, or IPO, fear of missing out (FOMO) abounds. Talk to your kids about the dangers of impulsive, short-term investment decisions based on FOMO. Then, remind them how long-term thinking (aka delayed gratification) is more likely to lead to success.
Too-Good-To-Be-True Often Is
It has guaranteed high returns! Easy money! Fast growth! These are typical false promises that lure uninformed investors into bad investments. Teach your kids why and how to determine the difference between excellent and too-good-to-be-true investments.
Ignore the Noise
A big part of successful investing involves training yourself to ignore the noise. That includes things like over-the-top predictions, normal market gyrations, and general investment chatter. Help your kids learn to differentiate helpful information from distracting and unhelpful noise.
It may feel like an ongoing battle to counteract the hype of financial news and current events. But in the end, it's well worth the effort. Your kids will not only develop greater financial literacy but media literacy as well.
8. Explain How Retirement Accounts Work
When your kids enter their teen years, that's a great time to teach them about retirement accounts. An ideal time would be when they start their first part-time job. Then, they can officially open and start investing in an IRA (in the US) or RRSP (in Canada).
Explain to your child how tax deductions and sheltering work and the differences between tax-deferred and tax-free accounts. Keep in mind, however, that these concepts are somewhat complex, so take it slow.
Even so, don't underestimate your kids! They may catch on and take to the concepts easily. Introduce the info in a digestible way, then go at their pace. As they grow more mature and experienced, you can start introducing more advanced retirement topics such as:
- Other retirement accounts and how to use them.
- The 4% rule.
- FIRE (financial independence, retire early).
- Tax optimizations.
Sharing this important knowledge with your kids ensures they'll have ample time to prepare and plan for a comfortable retirement. (And, possibly, even early retirement!)
9. Teach Your Kids How To Avoid Debt
The burden of overwhelming debt can be almost impossible to overcome. It can be especially crippling when the debt is acquired early in life, and the interest compounds itself. You can help your kids avoid getting into a situation like this by:
- Explaining that credit cards and loans are not free money. They will have to pay it back one day—with interest.
- Emphasizing the importance of making payments in full and on time.
- Showing them how compounding works against them, particularly with high-interest debt (as most credit cards have).
- Discussing how some types of debt may be unavoidable (mortgages and student loans) while others are mostly optional (credit cards and car loans).
- Reminding them that even unavoidable debt should be minimized and carefully managed.
- Sharing tips for planning ahead, saving for a rainy day, and avoiding debt.
- Telling them about credit scores, credit reports, and the importance of maintaining a good credit rating.
Many adults don't know these basics and continually send themselves deeper and deeper into debt. By arming your kids with this info, they may never have to face the painful problem of working to zero before saving for their future.
10. Share Your Whys for Saving and Investing
As a FIRE blogger, I always stress the importance of knowing your whys. That's because your whys are what will drive you towards your big life goals.
Without meaningful whys, you won't have the motivation to delay gratification and stick through the tough times to reach success. So, take your time with this and consider what's most meaningful to you. (Hint: look to your core values.)
Once you figure out your whys, share them with your kids, then help them think about their whys for saving and investing. If you're feeling stuck, I'll share some of my whys to get you started:
- My why for being frugal and saving money is to direct our money to the things that matter most to us: good food and experiences with friends and family!
- My why for investing is to provide my family with financial security. This gives us peace of mind, knowing we have the resources to keep us safe, comfortable, and happy.
- My why for FI (financial independence) was to make work optional for my husband. Doing so gave him the time to spend more time with the people he loves, doing things he's passionate about.
Here are some kid-oriented whys to give your kids some ideas:
- My why for putting money in my piggy bank is to buy myself some candy the next time we go to the store.
- My reason for saving money is to buy those new toys that my friend and I wanted to play with.
- My why for investing is to go to university or help me buy a house one day.
Have fun exploring your whys—both your own and your child's! It's an excellent way to talk about your dreams and hopes for the future and get to know each other differently.
In addition, knowing your child's whys can give you insight into what motivates them. This can help you to better tailor your money lessons to their wants and needs and lead to greater success.
The importance of financial literacy is, thankfully, becoming more widely recognized. That means it's increasingly being included in school curriculums and taught to kids from all walks of life. This is a very, very good thing.
However, as a parent, you can give your child an extra leg up by supplementing their financial literacy learning at home. There are plenty of ways you can weave this teaching into daily life. I hope this post gave you a few ideas to get started!