Teaching Money Skills to Children

by Lee Alderman,
Assistant Vice President of Training & Financial Literacy, Redwood Credit Union

As back-to-school season begins, your children and teens will learn subjects such as English, math, history, and science. But what about financial management? Like many essential life skills, the basics of money management will come from you, their parents.

Raising children who are money-savvy— a challenging task for most parents—is perhaps even more difficult in today’s economy. However, the current economic environment makes basic money management skills more important then ever. Many financial leaders nationwide believe that a lack of basic financial understanding contributed significantly to the economic troubles we face today.

Parents as Teachers
As a parent, you can teach your children financial basics such as saving, earning, spending wisely, donating and even the concept of credit. More importantly, you have the opportunity to guide, cultivate, and reinforce sound financial habits to prepare them for managing their money in the future. Here are some suggested fundamentals to help you get started:

Early years, ages 3-7:
• Show them how to save coins using a clear jar or piggy bank that allows them to see the money “growing” inside.
• Explain how money is used to buy things. Consider letting them hand the clerk money when buying ice cream or other desirable items to demonstrate how money is exchanged for goods.
• Introduce the concept of saving for a goal. For example, if your family is planning a vacation to Disneyland. You can use this goal to discuss how you will skip buying items today so you can reach that goal sooner.

Pre-teens, ages 8–12:
• Introduce a weekly allowance and begin teaching the experience of paying for items with money they’ve earned.
• Familiarize them with what financial institutions do and help them open their own savings account.
• Explain the idea of “wants” versus “needs”—this concept plays a key role in making financial decisions.
Encourage them to save their own money for things they want, such as video games.

Teens, ages 13 – 18:
• Explain how credit cards work, and the pros (convenience) and cons (debt) of using them.
• Help your older teens open a checking account and teach them the skills—and necessity—of tracking your money through check registers or online banking.

Parents as Role Models
A parent’s job as role model is just as important as that of teacher. Your children learn a lot about how things work “in the real world” by watching your actions. If you pull out the credit card every time you buy something, they will learn that there’s no need to save as long as you have the “magic” plastic card.

Here are some additional recommendations to help you impart strong money skills to your children:
• Create a family budget with input from the whole family and allow your children to see where money comes from and where it goes.
• Set future financial goals as a family so your children begin to understand why unnecessary purchases, such as the latest fad toy, impact that family goal.
• Ask your children to help you as you pay monthly bills and help them understand why these payments must be made first.
• If the family decides to have a special movie and pizza night on the town (or any other similar expense), show your children how you decide what you can afford and how that impacts the family budget.

Education is an important part of every child’s life. In school, they develop intellectual and social skills that will last a lifetime. At home, they learn to help with chores, ride bikes, and a myriad of other skills. As parents, it’s important to ensure that one of these skills is basic money management as you help prepare your children for the future.

For additional tips on teaching your children to be money-smart, as well as online articles and exercises they will enjoy, visit
www.redwoodcu.org/youth