Financial Literacy for Kids: How to Teach Kids about Money

Hello, hello! Welcome back to Financial Self-Care, the place where you learn how to take care of yourself by taking care of your money. Today, you’re going to learn how to pass that self-care on to your kids: Financial literacy for kids!

There are many reasons why women and couples start financial therapy.

For couples, it’s often because they’re sick of fighting about money and they want to be on the same page. For individuals it’s generally because they are tired of feeling so chaotic with money and they want to start feeling in-control.

You’ve come to the right place.

How to Teach Kids about Money

Whether you’re single or in a partnership, nearly everyone with kids (and even many who eventually want kids) want to teach their kids about money.

And it makes sense, right? Kids are a HUGE motivator OR are they?

Many people would like to believe that kids are motivation for parents to get their financial sh*t together, but the hard truth is that’s actually not usually the case.

An article by Business Insider titled: 9 Scientific Ways Having a Child Influences Your Success ,gives a brief breakdown of how being a parent changes how we move through the world, both individually and societally.

It notes how mothers face negative bias in the workplace while fathers typically see a positive bias – a concept referred to as the motherhood penalty and the fatherhood premium.

It also goes on to say non-parents are generally more healthy than parents with findings like:

“Non-parents are 73% more likely than parents to say they “never” eat at fast food restaurants and 38% more likely to exercise at a gym once a week or more; while parents are 17% more likely to say they never exercise and 10% more likely to consider themselves overweight.”

We’d like to believe that when we have kids, we’re motivated to do right by them and that includes taking care of our physical health, emotional health, relational health, and of course, financial health.

But more often than not, what happens is… we’re tired.

Being a parent is exhausting. My son is 2 and my daughter is 4, and they’re incredible kids. They sleep well, eat well, and love to read and be outside. I honestly don’t have a lot to complain about.

BUT I’m also taking care of WHOLE ASS LITTLE PEOPLE. With whole ass bodies and whole ass feelings. And that, in and of itself, is an exhaustion that simply can’t be explained.

How Can Parents Teach Financial Literacy to Kids?

So what do we – as parents – do?

We play to our strengths, and we do the best we can.

If your strength isn’t financial literacy then passing that on to your kids is unlikely to be your top priority; unless you intentionally make it so.

Because financial literacy isn’t like riding a bike. You can’t try a couple times, fall off, scrape your knee, get back up, try again, get the hang of it, and boom you’re good for life.

No. Financial self-care is more like riding a dirt bike on a never-ending race track, complete with hurdles and obstacles, highs and lows, and other people bumping into you and getting in your way.

Sure, there are little things you can do to make it a little easier like groom the track and have the best shocks and tires. But you’re on that track for life, and the only way you’re going to become a master at it is to practice going ‘round and ‘round.

Is this metaphor landing at all?

I hope so because I’m going to keep going with it. When you’re on that dirt track for the first time, and you see a mound of dirt ahead of you, you will have no idea how to conquer it. You certainly won’t do so gracefully.

But after you practice over and over again, you know how to maneuver it much more skillfully. Probably not perfect, but pretty good.

That is how your money journey works.

You will inevitably mess up and make mistakes. But those hurdles become less scary, those mistakes become less consequential with practice.

Because even though money work seems like it’s all about the action you’re taking (or not taking), it’s really, in many ways, a mind game.

Financial Literacy for Kids: Predictors of Financial Success

We know that coming from a wealthy family is one of the greatest predictors of financial success.

Emotional Intelligence

But I have some reallyyyy good news. A 2017 study found that the biggest predictor of financial success – even bigger than someone’s IQ or the wealth of their family – is emotional intelligence.

In this model of emotional intelligence there are four domains studied: self-awareness, self-management, social awareness, and relationship management.

All of which the authors say are, “learned and learnable abilities.” They go on to encourage mindfulness saying:

“Mindfulness helps, for example, with emotional self-awareness. It enables you to tune into your feelings. Being able to know how your emotional state or your internal state is affecting your performance is an absolutely crucial skill.”

Money is Emotional

If you’ve been here awhile you know that I constantly say: MONEY IS EMOTIONAL.

Identifying and understanding your emotions and how they affect your behaviors is critical when trying to manage your money well.

The article goes on to encourage mental regulation saying:

“Emotional self-control is being able to manage your inner emotional world so that you can keep your focus, you can be mindful of the task at hand. As Aristotle said, “Anyone can get angry, that’s easy, but to be angry with the right person in the right way for the right reason at the right time, that’s not so easy.”

But, Lindsey, I thought you were going to teach me how to teach kids about money?

And my response would be. I am.

Financial Literacy for Kids: Modeling Good Money Habits

Because in order to teach your kids something, you have to understand it first. You couldn’t possibly teach your kids French without knowing the language yourself. The same is true for money.

So I implore you to get a handle on your own finances so you can teach your kids financial literacy.

If you’re out there impulsive spending money, mindless buying crap from Amazon or SHEIN, not saving with purpose, not investing for your future, not talking openly and kindly to your partner about money, then you’re not modeling good financial habits.

A study out of the University of Michigan created a Spendthrift-Tightwade Scale for Children. After interviewing 225 kids ages 5-10, the researchers were able to identify, “that children as young as five already had distinct emotional reactions to spending and saving money, and that these translated into actual, real-life spending behaviors.”

Where do you think they learned that behavior? Yup, right from their parents.

Research shows money habits are established by age 10.

Here’s the thing: Yes, money habits are established really early on; 10-years-old is crazy young. But the good news is, habits can always be changed. And that is why I love doing this work. Because even if you have poor money habits because good money habits weren’t modeled to you as a kid, you can still change your habits.

If you want to, you can change.

So, yes, the very first step for how to teach kids about money is learning financial literacy for yourself.

I’ve just unintentionally teed myself up for a plug, so I’m going to tell you again:

If you’re ready to get a handle on your money, I offer 1:1 financial therapy for individuals and couples. Just fill out the form in the show notes and either way we’ll get you scheduled for a FREE 15-minute consultation to see which is right for you.

Now, once you’ve realized that the very best thing you can do to teach your kids financial literacy is to become financially literate yourself, you can try these other things, too!

Financial Literacy for Kids: Age 0+

You know that money emotions, behaviors, and habits are established as early as age 5. But that doesn’t mean you should wait until then to start teaching money. You can start as early as the day they pop out of the womb.

Financial Literacy for Kids: Talk about Money WITH Your Kids

Starting from the day they were born, you should be talking about money with your partner in front of your babies. Again, this would require you to know your income and expenses. Celebrate the money you’re making and plan how you want to spend it. Have your money date while your kids are within earshot.

It might feel uncomfy at first, which is why I recommend doing this early on, but you can absolutely start this at any point in your kids’ lives. Using my Intentional Spending Planner you can say something like, “Wow, we made $10,000 last month! That’s awesome. We’ll probably bring in something close to that next month. Let’s plan our spending goals for January (or whatever month is next).”

For too long, parents have tried to “protect” their kids from money. Think about it. Was money something that was openly talked about in your house? Often the answer is, “No, my parents tried to not talk about money in front of us.”

But in reality, not talking about money in front of kids is doing them a HUGE disservice. When you hide money conversations from kids, it perpetuates the idea that money is taboo and, well, something worth hiding.

How can you teach something that’s hidden? Ya can’t, so start talking about it.

Financial Literacy for Kids: Family Meetings

Next up, have family meetings. Family meetings were always something I wanted to introduce to my kids, but it really hit home when a client of mine was explaining her money story to me.

She told me as she was growing up, her parents would occasionally call a family meeting. One time, she recalled her parents wanting to buy a new house. In order to do so, they would have to stop going out for their weekly brunch after church. And instead, redirect that money to savings for a down payment.

I asked her how that went over and she remembered it being a really good experience. No one was sad about the brunches, at least not for long because they knew what their family was prioritizing something greater – there was no mystery. And once her parents saved enough for the house, after-church brunches resumed.

My client said she always felt included and important because she was always given an opportunity to say what she thought. She had autonomy.

I know she listens to this podcast and for confidentiality reasons, I won’t share her name, but hey girl. I hope you’re doing well today and kicking butt like usual!

What her parents did for her, I want to do for my kids. I want to make them feel like their opinions are important and valued and will always be considered.

In fact, we held a family meeting before my husband left his job. We told the kids that daddy will be home more often, but we wouldn’t go out to restaurants as frequently. They were elated to have more time with daddy – well at least Kinsley was. Koko just enjoyed passing the talking stick around the circle.

But I’m really glad we started doing this early on, so when they are 8, 9, 10, 11, whatever, they already feel like their input is valuable and heard. And family meetings will just be something we do – for good news and for bad.

Financial Literacy for Kids: Age 2+

Alright so those are both things you can start anytime, and the earlier, the better. But once your kid is 2 or 3, depending on their level of interest, you can start teaching them about actual money.

Do things like:

Let them help pay at the grocery store
Show them coins and cash (yes, in the digital age, this would require going into the bank and getting actual dollars and cents)
Play pretend “store” with them
Read books that encourage good money habits
Get toys like a cash register or piggy bank
Simply practice counting with them

All of these things are relatively simple and start the foundation for being financially successful.

Financial Literacy for Kids: Age 4+

As your kid continues to grow up, you continue to teach them financial literacy.

Financial Literacy for Kids: Allowance for Kids

A couple months ago, my daughter turned 4-years-old. On her 4th birthday, we gave her $4 dollars and a contraption of my own making. The contraption is just four little acrylic boxes stacked 2 by 2.

I don’t know how well I’m describing it, but you can see my viral reel @financialtherapistlindsey on Instagram.

Anyway, on the front of each box, I put labels. The first says INVEST, then SAVE, then GIVE, then SPEND – all categories that are important to teach from a young age.

You see where I’m going with this: We started giving Kinsley a weekly allowance.

On her birthday along with the 4 bucks, we gave her a chore chart with four “chores” including sharing with her brother, putting clothes in the hamper, going potty when asked, and picking up her books.

Every Wednesday, we check her chore chart, and give her four $1 bills. (I did some work preemptively for this, getting $200 worth of $1 bills and bought a cash box from Facebook Marketplace to store the cash. I intentionally made sure that every week, we would have money available for allowance time.)

When we give her the $4, she puts $1 in each bin – invest, save, give, or spend. Then, when she turns 5, she will keep the same bins, and she will get to choose where the extra dollar goes. Same for when she turns 6, 7, and so on.

Many commenters on my viral video asked where she’s possibly investing her money, and my answer is (drum roll please): her 529 College Savings plan. Both of my kids have a 529 plan that we regularly contribute to. Now she gets to contribute to it as well!

Same for savings, she has a savings bucket in our high-yield savings account at Ally bank. (This isn’t sponsored, I just love having my savings account there.) Every few months, we deposit the money from her investing and savings into the bank, then show her the balances.

Again, I do some preemptive work here by counting her cash ahead of time and making the transfers into her respective accounts. That way she can already see her money in her investing account and savings account when I show her the numbers online.

Remember, she’s four, so do I totally think she’s grasping the entire concept of online banking? No, but I think it’s a good first step. Plus, we match her investment dollar to incentivise investing – just like a 401(k) match does.

For her give money, we chose a kid from our local community Winter Wishes tree. And Kinsley bought a present for the little girl with her own money.

And finally, for spending, I made special time for her and I to go to the store, so she could buy the toy of her choosing. She chose a Princess Barbie doll. And she did the whole transaction, start to finish. From choosing her item, putting it on the belt, counting her money, taking the change, all of it. And she was LIT UP about the whole experience.

We chatted about allowance before starting this whole shabang. I told Kinsley that having money is a really big responsibility, but she assured us she was up for the task. And she hasn’t disappointed us yet!

Now, there is some controversy with allowance because some people believe, as a member of the family, kids are automatically supposed to help out and shouldn’t be paid for basic chores.

I can totally understand that sentiment.

But teaching kids about money early and often is far more important to me. Besides, Kinsley is the best helper out there. She constantly volunteering to help fold laundry, vacuum, feed the dog, or whatever mommy or daddy jobs we’re working on.

You can, of course, not attach chores to the allowance and just give your kid the money. But I like the idea of, “this is how you earn money” because one tool in money management is income. And when she’s 16 and gets her first W2 job, I want her to have a solid understanding that, the more you work, the more you get paid.

That structure will change as she gets older and becomes salaried or has her own business, or invests in real estate, or wherever her path takes her. But for now, I’m keeping it simple and helping her understand the basic principles of money. And you should teach your kids these things, too.

Financial Literacy for Kids: Let Them Make Mistakes

Alrighty, next thing to focus on is letting your kids make mistakes. As your kid gets older and they get more allowance or have their own job, they will spend money on stupid shit. Let them.

I highly encourage you to let your kids (especially those who are about 8-years-old or older), to impulsively buy dumb toys. You know those toys will be used twice and then forgotten about forever.

After they buy the thing, you can follow up with them a few days later and say, “Hey, I noticed you bought that squishmallow the other day and haven’t really played with it much. What do you think about that purchase?”

Or conversely, if they buy something and are getting a lot of use out of it, Like Kinsley and her Sleeping Beauty doll, you can say something encouraging like, “Hey, I noticed you bought that MAGNA-Tiles set and you’ve been playing with it nearly everyday. That was such a great purchase!”

It’s hard to let your kids make mistakes, but that’s all a part of the learning process. Plus, I’d rather have them make $40 mistakes now than make $40,000 mistakes later.

Financial Literacy for Kids: Age 10+

As kids grow into their pre-teen and teen years, you’ll want to continue educating them about financial literacy.

Financial Literacy for Kids: Opening Bank Accounts

This is when I recommend opening up their own bank accounts. Like I said before, Kinsley and Koko both have 529 college savings plans open. I encourage you to open one, too, as soon as they have a social security number.

But as far as having their own checking and savings accounts, I have maybe an unpopular opinion on that.

Two years ago, I did open a checking and savings account for both of my kids. But within a matter of months, I drained the accounts and closed them. Because the money in those accounts wasn’t working for them.

My kids are extremely lucky and privileged to get cash sent to them for their birthdays or holidays from relatives who live far away. $20 bucks for Easter or $50 bucks for a birthday adds up. When Kinsley was 3-and-a-half, she had already accumulated nearly $500 from relatives.

But putting that money is a checking account that was yielding *maybe* 1% was a waste. Especially, when it could be earning way more in her 529 or at the very least in a high-yield savings account.

I drained and closed the checking and savings accounts and instead invested that money far more wisely. Where the money could grow.

Then, when they turn 10, we’ll go to the bank TOGETHER and open their accounts. Not only do kids learn through modeling, they learn by doing. I can’t do everything for them – AKA open a checking account – and expect them to know how it works. They have to do it themselves.

Financial Literacy for Kids: Opening a Custodial Roth IRA

When kids are pre-teen they will probably still be getting allowance as their main source of income. But what happens when it’s time for them to get a job?

The day my kids get a job is the day they will open their own custodial Roth IRA, an investment account. Most often, kids will do this when they have their own W2 job, but some kids will have their own custodial Roth IRA by being employed by their parents.

Like your own Roth IRA, kids have to have earned income to contribute to a custodial Roth. And it can’t be under the table money like from babysitting or mowing lawns.

For example, if my kids are contracted 1099 employees of my business, they would be eligible to contribute to a custodial Roth IRA. Same goes for if they’re an employee at McDonalds or the local golf club.

And this goes back to the importance of you understanding how money works, so you cna teach your kids how money works.

Because check this out:

If you start contributing to a Roth IRA at 30-years-old and want to retire at 50-year-old with $1,000,000 – I’m using that as an easy number, you’ll need to contribute $1,600 every month for 20-years to reach that goal, using a 9% return rate.

BUT if like me you started working at 15-years-old at Plato’s Closet and contributed to a custodial Roth IRA (which for the record I did not do, but wish I knew about), you’d only need to contribute $375 every month to reach a million bucks.

Like with all investing, time in the market is the most important thing.

The Wrap Up: Financial Literacy for Kids

There is so much more we can talk about as far as financial literacy for kids is concerned.

We didn’t have time for topics like taxes, avoiding bad, high-interest debt, using low-interest debt as a tool, how to navigate student loans, grants, the 60-10-10-20 Rule, or starting a business. The topics here are literally endless.

But if you liked this episode and found it helpful, please give it a five star rating, share it with a friend, or on social media, and shoot me a message. You can email me or DM me on Instagram, so I know this content resonated with you, and that you want more of it!

Next week, I have a fun episode planned for you on how to get unstuck with your money.

Until then, go enjoy the rest of your day!