Back-to-school season is a blur for most parents — from shopping for supplies and new clothes to getting fresh haircuts for picture day. The list goes on! But how is all that spending made possible? By carefully budgeting and saving.
You may know how to handle your finances responsibly, but are you passing those skills along to your kids? While most people agree that parents are responsible for teaching their kids good money management, few actually take the time to do so. Raising financially responsible kids doesn’t just happen. It takes intentionality!
Why Financial Education at Home Matters
Financial literacy is finally getting some of the recognition it deserves, with more and more states (including Minnesota) requiring high school students to pass a personal finance course in order to graduate. While schools can teach broader economic concepts and offer helpful curriculum, parents and grandparents need to complement this education, bringing it to life.
Parents can address specific money questions or challenges kids may have, and they can use their own experiences and real-world examples to illustrate money lessons from school. While grocery shopping or planning for a big purchase like a new car, you can teach your children about budgeting and saving, showing them firsthand how money works in everyday life.
Whether you realize it or not, you’re teaching your children values-based lessons like financial responsibility, philanthropy and the importance of hard work by how you handle your own finances. Kids are sponges, and they can learn a lot from how you manage the household budget. By setting a good example, parents instill positive money habits and a healthy mindset towards finances.
Parents have the power to reinforce school-taught money lessons and fill in any gaps. You may not have all the answers, but you can point them in the right direction and engage in conversations that deepen their understanding of how money works.
Money Lessons for The Littles
It may seem early, but children can understand money concepts as young as three years old. As soon as they’re old enough to comprehend, you should begin teaching them how to handle money with hands-on experience and practical examples.
Saving: Start by talking about saving and goal setting. Encourage your kids to set short-term goals, such as saving for a toy, and long-term goals, like saving for college or a big-ticket item. Rather than buying kids anything they want, this teaches them the concept of delayed gratification and emphasizes the importance of saving for things as opposed to impulse purchases.
Budgeting: As they get a little older, you can teach your children the basics of budgeting. Some parents choose to give their kids a small allowance for doing household chores. Encourage your children to put that money away into different buckets, such as saving, spending and giving. Tell them why each category matters, and use their budget as a tool to differentiate between needs and wants.
Needs & Wants: Essential items like food, clothing and shelter should always come before your wants, which are nice things to have, but not necessary for survival. You can share how you divide the family budget into wants and needs, or bring the lesson to life by pointing it out during a trip to the grocery store. Learning how to differentiate the two is a valuable life-long lesson that can help your kids avoid overspending as adults.
Money Lessons for Teens
How to Manage Expenses: Once your children are in junior high and high school, they may be earning money through a part-time job, and they may even have some expenses to consider like gas for their car. Teach them how to manage a budget that tracks their income and expenses. Explain how fixed expenses, like rent and utilities, are different from variable expenses, like dining out or shopping for clothes. Encourage them to use their critical thinking skills to prioritize their spending based on their financial goals.
How Credit & Debt Works: About 40% of teenagers have a debit card, while one in five have access to a credit card! Make sure your children understand how credit and debt works before you hand over the plastic. Explain how your credit score affects your ability to reach certain goals like securing a mortgage or getting a favorable interest rate on a car loan, and share how you can boost your credit score by managing your finances well and paying your bills on time. Your children should also understand the potential risks of debt, and how going into debt can impact their financial future. If college is in the near future, have conversations with your kids about responsible borrowing habits and the potential pitfalls of student loans.
Why Saving & Investing Matters: If you could tell your younger self one thing about finances, it would probably be to start saving sooner! Give your kids a leg up by showing them why saving and investing money is important. Explain how compound interest grows their money faster over time, and introduce them to the different types of savings accounts, retirement plans and investment options that are available. You can even help them open a Roth IRA, so long as they are earning an income! While investing is important, discuss the risks that can be associated with investing and how diversification can help them protect their money.
From elementary school to adulthood, find a rhythm for teaching and supporting your kids that aligns with your family’s distinct needs and circumstances. At the end of the day, leading by example is one of the most powerful ways to set your children up for financial success. If they watch you prioritize your own financial stability with wise habits, your kids will be inspired to follow in your footsteps.