There are a lot of good reasons to teach your kids about money. For one, you don’t want your children repeating your own financial mistakes. Also, if you raise financially shrewd adults, chances are they won’t someday be asking you for money. By helping them, you’re helping yourself.
Teaching your children about money is also simply the right thing to do.
Whatever your motivations, it can be a challenge to figure out how to impart your hard-earned financial wisdom. For instance, at what age do you start? How deep into the weeds should you go? Is it better to show them how to manage money than tell them?
[Read: 15 Creative Ways to Save Money.]
How to Teach Your Kids About Money
As you can imagine, there are many approaches to teaching your child about money. Some parents believe in allowances; others don’t. Some companies market debit cards to elementary school children, and some parents think that’s an insane age to be learning about a debit card, no matter how many parental controls are instituted.
What matters, of course, is what you think. But here a few general rules of the road:
Talk to your kids about money. Mitchell Kraus, founder of Capital Intelligence Associates in Santa Monica, California, echoes what many experts say: “The best way parents can teach their children good financial habits is by discussing the money decisions that they make.”
Kraus acknowledges that everyone makes different financial decisions, but you should at least discuss your thinking on spending and saving with your kids.
“Most Americans have a choice on how to spend their money,” he says. “Some choose nicer cars and houses. Some choose experiences. Going over the choices with your children helps them understand your values and that life is full of choices.”
Consider an allowance. There are good arguments for not giving your child an allowance. Some experts say children shouldn’t get paid for doing expected chores around the house — and for being part of a family. But as Kraus points out, “Giving a child a small allowance also helps children learn about making choices with their money.”
Continue discussing finances with your child and eventual teenager. Don’t make it a one-and-done conversation. “Where most parents stop short is following up with the children on how well those choices turned out and what choices they might want to make in the future,” Kraus says. “Across cultures, there are stories about great wealth being lost in three generations. The first generation works hard and lives on a tight budget to create the wealth. The second generation sees the hard work and sacrifice and understands that choices need to be made about money. The third generation has never heard a fight at the dinner table about money and tends to blow everything, not understanding its value.”
Get your child involved in charitable giving. This could be something you do at church, or you and your child could raise money for a good cause.
“Engaging your children in thoughtful philanthropy is a hands-on way to share your family’s values and teach your children about saving and giving back to their community,” says Ross Cohen, a certified financial planner and wealth advisor at Bartlett Wealth Management, a firm with offices in Cincinnati and Chicago.
Ideas for Your Kids to Earn Money Right Away
Another way for kids to learn a lot about money is by earning it. We’ll leave out the traditional lemonade stand idea since there’s still a pandemic and all. Depending on the age of your child, you may need to help them with some of these ideas.
— Yard work for a neighbor.
— House and/or pet sit for vacationing neighbors.
— Sell crafts on a website, such as Etsy.
— Organize a yard or garage sale.
— Shovel driveways for neighbors in the winter.
— Do extra chores for money.
— Wash neighbors’ cars.
— Collect recyclables.
[Read: How to Save Money for Your Kids.]
Ideas for Teaching Your Kid About Money By Age Group
Obviously, you’re going to teach a 5-year-old about money differently than a 15-year-old. Here are some ideas.
For younger kids. Your 3-year-old doesn’t need to get a job, but he or she doesn’t need to be oblivious about money either.
Melanie Hopkins, founder of Finance Friend, a financial consulting firm in Brooklyn, has a good idea for parents of children as young as 3 or even 2.
“When they get a treat at the bakery or a toy at the toy store, let them hand the cash or credit card to the cashier,” Hopkins says. “That helps them to understand that money is transactional, which is a core concept that you can build on as they get older.”
For elementary school kids. Games are a fun way to impart financial lessons. “As funny as it sounds, Monopoly is a great game to play with children to begin the concepts of money,” says Aaron Leak, founder of ECL Private Wealth Management in Rockford, Illinois.
He says older elementary school kids can handle more complicated financial transactions, as long as you’re leading the way, of course, and monitoring their finances.
“The earlier kids understand money the better,” Leak says. “My daughter is 12 and has her own debit card with her own money transferred to her from me for chores. She also has her own investment account where we discuss and talk about how investments work.”
For teenagers. Leak is all for teenagers learning about investing. And at some point, if you think your kid should get a part-time job, that’s not a bad idea, many financial experts say.
“As a young teenager, you can babysit, mow lawns or referee sports. As they get older, there are opportunities to work in retail or hospitality,” Cohen says.
[See: 35 Ways to Save Money.]
Should Your Child Have a Debit Card?
That’s up to you, of course, but Craig Everett, a professor of finance at Pepperdine Graziadio Business School, doesn’t even think your college student should have a credit card — and has some interesting reasoning.
“I do not recommend credit cards for anyone under 25. The frontal lobe, which allows people to connect current actions with long-term consequences, does not fully develop until the mid-20s,” Everett says. “Credit cards allow current spending that may have significant negative future impacts, so incomplete brain development can have disastrous financial consequences for these people who are just starting their adult life.”
He recommends that parents encourage their adult children to use debit cards exclusively until age 25. Everett admits that your adult kids are unlikely to follow your advice, but “it can’t hurt to try,” he says.
As for young children, particularly if they’re under age 8, Everett isn’t crazy about the idea of them having debit cards.
“In my experience, debit cards are not very useful in teaching young children about money because the card is only an abstraction and looks the same regardless of how much money is in the account. Using physical cash is much more effective in teaching kids about the value of money,” Everett says. “For kids under 8 years of age, coins are the most effective because of the differences in size and weight. Young children really enjoy activities of counting and exchanging coins.”
With any luck, if you really teach your kids well about money, someday your child will make a lot of the green stuff and be able to support you in your old age. See, what did we tell you? By helping them, you’re helping yourself.
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Update 04/07/21: This story was published at an earlier date and has been updated with new information.