How to teach your kids about money – and put them on a path to a sound financial future

We all want our children to grow up with a strong work ethic and good money management skills. It doesn’t just happen. They need good role models who can teach them how to spend responsibly, avoid excessive debt, invest for the future, and follow other good financial practices. Parents, that means you.

Since it’s back-to-school season, it’s worth noting that more school systems these days are offering courses in personal finance. That’s a positive step. But the most important education happens at home. Kids are very perceptive; their eyes and ears are aways open. And, consciously or not, they often mimic the behaviors of their parents and other influential adults. So it’s important to talk to your kids about money issues and demonstrate good financial habits in your day-to-day life.

Different ages, different messages

Behavioral studies show that children begin to form financial habits by age 7. Around that age, you obviously need to keep things simple. You can start by giving them an allowance for doing chores around the home. This will teach them money is tied to work, and naturally encourage them to begin making choices with their earnings.
Even very young kids can understand the difference between wants and needs. So talk about that, and urge them to save up for purchases that are important to them. Some experts even suggest dividing allowance money into different jars … one for spending, one for saving, one for charity. It’s a great way to help kids understand how saving works – and how their money can be used to help others.
When they’re older, you should encourage your kids to get summer, weekend, or after-school jobs. Earning those first paychecks will help instill a sense of financial independence, which is important to their development into responsible adults. You can also talk to your teens about basic topics such as credit and debt, and help them open their own savings and checking accounts. Feel free to discuss your own savings objectives, such as retirement or college expenses, so they can see how you work toward financial goals. And if you can afford it, consider offering to match whatever amount they put away to provide an extra incentive to save.
As young adults, you can talk to them about the importance of setting and living within a budget. Once they get a job that offers a retirement plan and company match, you can emphasize how important it is to earn the maximum match, avoid early withdrawals, and let that money grow over time.

Take advantage of teachable moments

No matter how old your kids are, you can always find teachable moments to explain financial decision-making. It can be a small matter, like why you selected one item over another at the grocery store. Or it can be a more complex issue, like why you decided to repair your car or renovate your home instead of buying a new one.
There’s another important financial lesson you can teach kids at any age: a person doesn’t need to be rich to lead a satisfying and fulfilling life. Studies show that, on average, people who simply earn enough money to live comfortably are no less happy than those who earn much more. The key is to make the most of what you have and manage it wisely. Those lessons can start early, and pay off for a lifetime.