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Parents want to raise healthy, happy, well-rounded children who grow up to lead a life they love. We encourage them to be kind, eat well, work hard in school, and follow their dreams. But we can’t set our children up for success without also providing the financial education they need to create the kind of future we want for them. Financial literacy for children doesn’t happen on its own and it doesn’t happen in school. As a parent, it’s up to you to ensure your kids understand money and the role it will play in their lives.

Set a Good Financial Example

If you want your child to avoid financial pitfalls in the future, start by setting a good financial example at home. Whether you are rich, poor, or somewhere in between, keep in mind that your child is observing how you manage money and picking up your habits.

Talk About Finances With Your Kids

While setting a good financial example is an essential first step, it’s also important to talk openly with your children about money. You can’t assume they understand or appreciate what money is, where it comes from, or how it works. Young children from all socioeconomic backgrounds see something, they want it, and they think it’s simply up to their parents whether they can have it or not. It’s your job to help them understand there’s far more to it than that.

Rather than sitting them down and teaching a class on financial literacy, make talking about money a normal part of your conversations.

  • Let them ask questions and answer them using a language they can understand.
  • When comparison shopping, encourage them to learn about different products and to consider the price when making a choice about what to buy.
  • If you received a promotion or a bonus at work, share your victory with them and give them some insight into why you are being rewarded and how the extra money is going to be used.
  • When making big financial decisions for the family, get them involved. If you need a new car or want to take a trip to Disney World, sit down together and go over what financial resources it would take to hit your goal and how you can budget for it.

Normalize conversations about money in your household so it’s not a mystery for your children. The more they know, the better they will be able to manage money as an adult.

Allow Your Children to Earn Money

The best way for your children to experience how money works is to allow them the opportunity to earn their own money. While pitching in with chores might be an expectation in your household, give them opportunities to do extra work in exchange for money. As they get older, let them earn some cash around the neighborhood walking dogs, taking out trash, or babysitting. Also, be open to new ideas like allowing them to set up an online store or monetized YouTube channel. When they are old enough, encourage them to get a job scooping ice cream or bagging groceries.

If you require your children to save up their own hard-earned money to get the doll, video game, designer jeans, or senior spring break trip they want, they’ll learn important life lessons in planning, budgeting, and delayed gratification.

Although you may gain personal satisfaction from providing a nice life for your kids, they will gain far more from the experience of working for at least some of the things they want. This is not about denying them or being hard on them—it’s simply a way to instill financial literacy and invaluable lessons from a young age.

Teach Your Children What to Do With Money

Part of teaching your kids financial literacy is helping them to understand that money is simply a tool that provides options and empowers people to create the life they want. You have the responsibility and opportunity to teach them how to spend it, save it, invest it, and donate it.

Teach kids how to spend money by showing them how to make and stick to a budget. Walk them through how to assess what you have versus what you want. As a toddler, this might involve setting up an imaginary shop in your living room and playing store. Help them identify coins to buy an apple or orange and have fun with it. As a teen, it could involve budgeting for their first car and visiting a car dealership two years prior to set realistic expectations.

Teach your children about investing money and making it work for you. If you’ve opened a college savings account for them, go over it with them periodically to show them how changes in the stock market affect its value. Talk to them about compounding interest and how their money can grow over time. If you’re middle class but Instagram and reality shows have given your teen high-end taste, pique their interest by explaining how investing at a young age can get them to millionaire status faster than waiting until they’re older to start investing.

Finally, empower your children by teaching them about donating money. If they are kind-hearted or have a generous spirit, show them how much of an impact they will be able to make if they have the financial means to do so. If you volunteer together as a family, talk to them about how financial contributions can directly help those in need as well.

The Power of Setting Financial Foundations

Setting a solid foundation of financial literacy today could make a big difference in your child’s financial future. No matter your current economic status, your kids will benefit from knowing how to manage money responsibly and make money work in their favor. Teaching them to avoid debt, budget effectively, save, and plan can prevent pitfalls and struggle for years to come. Instilling financial literacy in children is an important step for setting them up for lifelong success.

Kevin Stoddard is a LPL Financial Advisor with Stoddard Financial in Quincy, Massachusetts. Stoddard helps clients throughout New England to identify, plan, and execute strategies designed for securing their desired financial future. With their Financial Wellness @ Work program, they engage, educate, and empower employees by helping them to understand and appreciate the value of their benefits package.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.