Six Practical Tips for Money Management Skills in Children
Teaching children good money habits from a young age is crucial for their future financial success. Use these six practical tips to instill money management skills in kids of all ages.
Empower Your Kids with Smart Money Habits
Getting kids involved with budgeting, saving, and smart spending decisions helps cement healthy financial habits. While money can be complex, make lessons engaging and age-appropriate. Whether it's monitoring a first piggy bank or investment portfolio, empower children to take agency of their own finances early on.
Start Giving an Allowance Around Ages 6-7
An allowance provides the perfect introductory money management lesson. Begin giving a small, regular allowance around ages 6-7. Start with $1-2 a week and only increase if they prove responsibility. Use the allowance as an opportunity to teach key concepts like:
- Budgeting funds for spending, saving, and giving back
- Setting achievable savings goals and using piggy banks
- Delayed spending for bigger goals
As they get older, encourage kids to divide the allowance into envelopes or accounts for each purpose.
Open a Savings Account to Grow Interest
A major principle for kids to learn is the impact of compound growth on savings. Open a children's savings account with us. Show them how regular deposits and interest additions make their money grow.
Aim for consistent monthly deposits, even in small amounts like $5-10. Watching their account inch upwards over months and years demonstrates the power of compounding interest. Celebrate savings milestones by letting kids buy something special they've saved up for.
Explain Financial Terms in Relatable Ways
Do not assume kids will pick up financial vocabulary on their own. Introduce basic terminology around budgeting, credit, investing, and interest rates. Tailor definitions and examples to your child's age and money experience.
Focus on saving and spending concepts for young kids. Preteens can grasp more complex terms like stocks, while teens are ready for credit cards, loans, and debt. Making finance relatable and fun eases anxiety around money.
Include Children in Real-Life Spending Decisions
Reinforce money lessons by involving kids in household spending choices. When grocery shopping, explain how couponing and sales save money for other goals. Discuss financing options when making large purchases and demonstrate concepts like interest rates.
Seeing money decisions in action cements their importance. Kids also learn smart consumer habits around research, comparisons, budgets, etc. Giving them agency in small parts of real purchases builds money skills.
Consider Custodial Investment Accounts for Teens
Consider opening a custodial investment account once your teen has responsible savings habits. With guidance, they can choose stable investments like index funds or blue chip stocks. Teach investing principles like compound returns, market volatility, asset types, and diversification.
Monitoring real investments gets kids comfortable with long-term money growth for priorities like college or retirement. Only introduce investments if your teen has financial maturity from past money lessons.
Equip Your Kids with Lifelong Financial Skills
Teaching kids money management is crucial for their future success. Follow these tips to instill healthy financial habits around work, budgeting, saving, spending, and investing. Developing money skills early allows children to enter adulthood with confidence in their ability to manage their finances responsibly.