Children’s relationships with money can start early. Even before they have their own money to spend, kids watch you shop and pay attention to your values. Research shows that “family financial socialization” (how you talk about and model your money values) is a particularly important foundation for kids’ future financial literacy and habits. Work and classroom experiences matter, but “parents are the primary source of children’s financial learning.”
We spoke to Jessica Pelletier, the executive director at FitMoney, a nonprofit that provides classroom curriculum materials and digital tools to help teachers and parents teach kids about money. She says, “Children witness your decisions as an adult and internalize it and form ideas that will stick with them for quite some time.”
No matter how old your kids are, there are age-appropriate ways to encourage positive money habits and guide them toward saving for their own college education and financial well-being in adulthood.
Kids form the foundations of financial habits earlier than you think. Even when your child is too young to count to 10 reliably, they can begin developing skills they’ll use for spending and saving later. Toddlers are in the process of developing patience, attention span, and focus. They’re beginning to understand some more abstract concepts, like time, or that we exchange money for goods.
Pelletier knows a family who developed a star system for their 3-year-old daughter. A small toy or reward might “cost” two stars, whereas a larger reward was five stars. This early, tangible value system helped her practice earning rewards, counting, and waiting.
“Delayed gratification is relevant in so many things that we learn,” Pelletier says. “I do think that is a real, foundational principle of financial literacy. Financial literacy is a behavior. It’s a science on decision making.”
Pelletier says parents sometimes think of money education in terms of skills, like writing a check. But that’s a transaction, not a behavior — the behaviors are a better place to put your focus. Some behaviors you can practice with toddlers include:
- Delayed gratification (“Wait ten minutes for me to finish this email, and then we’ll read a story”)
- Decision-making (“This type of yogurt is on sale and costs less money today, so let’s choose this one”)
- Understanding time and sequencing (“Today is Thursday, tomorrow is Friday, and then Saturday is your friend’s birthday party”)
Pre-K and Kindergarten
While credit cards and digital payment make it possible for many people to go cashless most of the time, physical money still matters. For one, 81% of American adults are “fully banked,” but that leaves a meaningful percentage who aren’t. Black adults have the highest rates by race of being unbanked (13%) or underbanked (27%).
“It’s important for kids to see what cash looks like and feels like,” Pelletier says. “A credit card is hard to grasp when you’re struggling to understand how goods and services are purchased. It’s hard to understand if they don’t understand the tangibility of money.”
This is a good time to teach basics, like coins and bills. This is the chance for kids to learn surprising facts, like that 10 pennies is still worth less than one quarter, or that dimes are more valuable than nickels even though they’re smaller.
Your child may love to play “store.” A routine grocery run is amazing for kids’ imaginations. When you get home, you might find them pretending with play food, taking turns selecting items, or being the cashier who gets to collect the payment.
Around kindergarten is also the time when many parents start introducing chores as a means of learning about hard work, Pelletier says. Some parents are comfortable paying kids to do certain chores, while other families consider that work part of the “rent agreement” for all family members. She says the point is to teach “the idea that there’s something of value waiting on the other side.”
Whether that means earning allowance, stars to save for prizes, or certain privileges when chores are done, kids learn to connect their effort with value.
As kids move through elementary school, they’re building more complex math skills each year and learning more about those big-picture behaviors that shape financial literacy. Kids get some lessons about money through Common Core math standards. Plus, parents can ask teachers if they use any supplemental programs to build financial literacy. At home, you can start diving deeper into some core principles.
“Responsible borrowing is really important because people borrow money more than they realize,” Pelletier says. Parents can help kids understand that when a friend lends a bike, they expect it back on time, clean and in good condition. Friends might be willing to lend something else next time if they know you’re trustworthy. “And then all of a sudden when you introduce the concept of a credit score in middle and high school, they say, ‘Oh, that makes sense to me.’”
Saving and spending
Kids see ads everywhere, on YouTube or television or even at home. Even wearing your college sweatshirt around the house is an ad for your alma mater, Pelletier says. Talking about how you make decisions and choose when to say yes or no gives kids a frame of reference to do the same when they have purchasing power.
“You can start that as soon as they have money in their hand from a birthday, because that’s when spending decisions get moved to them and not you,” Pelletier says.
Dealing with financial challenge
Money can feel magical to young kids. It can seem like an endless supply, but on the flip side, kids who have been through financial struggle may worry about every single dollar spent.
“Kids are such sponges, they learn so much about their surroundings. Parents may try to shelter kids from the hardships of life, but we want our kids to know that we work hard for the things we need to buy,” Pelletier says.
That doesn’t mean you should bring children into serious financial discussions about what you can and can’t afford. But you could remind kids that you’re skipping one outing because you’re planning a different trip, or that you have ice cream in the freezer for dessert instead of buying cones at the park (there’s delayed gratification again).
Letting them fail
Kids learn through mistakes as much as by mastering a particular skill. Parents can provide a safe space to test money skills. Pelletier says, “My third grader got some money… He has a dime in his pocket and wants to spend a quarter.” His immediate impulse was to scroll Amazon for anything exciting to buy. When buyer’s remorse kicked in, he was the one to initiate a conversation about how he wished he’d saved for something he really wanted instead.
“I was so proud because I took a step back and let him make what wasn’t a life-altering mistake, and he learned that lesson so much better than I could have told him,” she says.
If blowing $15 of birthday money on plastic junk helps shape a child’s perspective on spending and saving, it could be money well wasted.
Middle schoolers typically can’t earn a paycheck yet, but they’re ready for more mature conversations about work and money. Pelletier recommends that parents talk about their own work and the value it brings. You work to earn income, but also hopefully for some degree of personal satisfaction and to contribute to a field you care about.
“There are so many high school juniors and seniors who feel so unequipped to answer, ‘What do you want to major in, what do you want to do?’ Expose [middle schoolers] to a wider range of careers so they can see where they will fit in and feel happy and be a contributing member of society.”
Sure, your 12-year-old may not finalize a career plan by the end of seventh grade. But visiting career fairs or reading about professions with you can open their eyes to possibilities they can think over as college comes closer.
In high school, teens are able to learn more complex financial concepts and take on more responsibility. Earning their own income is one way to boost students’ overall financial literacy. One study found that high school students’ financial literacy scores went up 5% when they held jobs. The sweet spot was 10-20 hours of work per week, which can be manageable to balance with school and extracurricular commitments.
“I personally think having skin in the game is so valuable when they’re older and starting the conversation about college… If your value system places a high value on a college degree, it’s so important to know that this is also a commodity and something you are purchasing, and you have choices,” Pelletier says.
Some habits to encourage with teens include:
- Envisioning college: Like making a frugal swap at the grocery store, some students can get a great education with less expense by earning credits at a community college and transferring to a “name brand” school in a year or two.
- Working: Some teens can save toward college expenses like textbooks, while others are earning money to help support their family, Pelletier says. Talk about expectations for your teen’s work schedule and where money needs to go, and create a supportive schedule to balance work and other important commitments.
- Saving: If teens don’t have a bank account yet, don’t wait any longer. These are important years to develop practical money habits.
- Recognizing gifts: Pelletier suggests that if a family member like a grandparent gifts your teenager money for college, your teen can write a thank-you note describing what they hope for out of college today. It helps them imagine their future and connect with their present mindset about college.
Preparing your children financially for college goes a lot deeper than opening a 529 account (although that’s great to start when they’re young, too). From their early years, kids watch you to develop ideas and habits around money that can become enduring beliefs. By the time they’re ready to earn their own contributions in their teen years, the lessons you’ve taught since toddlerhood can shape their attitudes around money and college.