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Teaching Kids About Money: A Comprehensive Guide

At O1ne Mortgage, we believe that financial literacy starts at home. Teaching your kids about money management from a young age can set them up for a lifetime of financial success. In this comprehensive guide, we’ll explore how to educate your children about money at different stages of their lives. For any mortgage service needs, feel free to call us at 213-732-3074.

Preschoolers and Early Elementary Schoolers

Think your kids are too young to learn about money? Think again. Even preschoolers can grasp basic financial concepts. Here are some tips to get started:

1. Talk About Money

Young kids don’t need to know your annual salary or how much you paid for your house. But talking to your kids about money in an age-appropriate way teaches them that it’s not a taboo subject and that it’s OK to ask questions. Normalizing money conversations at a young age will help your child feel more comfortable coming to you instead of their peers when they’re older and the stakes are higher.

2. Teach Them About Wants vs. Needs

Your kindergartener may want every toy they see on the shelves at the big box store, but that doesn’t mean they need them. It’s fine to want things, but kids need to understand they may not be able to have everything they want. Use real-life examples that demonstrate the difference between needs like nutritious food and water and wants like the latest video game. Teaching kids the difference lets them know that everyone must prioritize their spending, focusing first on necessities and second on nice-to-haves.

3. Give Them an Allowance

When kids are young, you’re probably buying everything they need. But that doesn’t mean you have to get them everything they want. If your budget allows, consider giving your child an allowance. Let them choose whether they save or spend it, and let them experience the consequences of their decisions. They will make mistakes, and that’s OK. It’s better for them to make mistakes they can learn from when they’re young, and there’s no impact on their long-term financial health.

4. Give Them a Piggy Bank

If you give your child an allowance, they need a place to keep it. Gift them with a piggy bank that keeps their money safe and allows them to watch it grow when they save and shrink when they spend. Having a visual representation to illustrate what happens when they save vs. spend can help young kids better understand how their habits affect the amount of money they have.

Mid-Elementary and Middle School

As your children get older and become more responsible, you can take some of the basic concepts you taught them when they were younger to the next level. Here are three ideas for upper elementary and middle schoolers:

5. Teach Them to Save

It’s hard to wait, especially for kids. But waiting is an essential skill for maintaining financial health—and they should practice it early and often. Teaching kids to save up and wait for what they want helps them prioritize. With limited resources, they’re unlikely to be able to buy everything on their wish list. They have to choose what’s most important. This also gives kids a chance to learn about opportunity cost. If they spend their money on X, they won’t have enough to buy Y.

6. Create Opportunities for Your Kids to Earn Money

At this age, most children can’t get a “real” job to buy things. As your kid gets older and their wants get more expensive, consider creating opportunities within your household for your children to earn more money. Creating paid jobs at home teaches kids that you must work to earn money. They get to choose whether they work or not. If they complete a job to your satisfaction, they get paid for it. If not, they don’t earn any money.

7. Open a Bank Account

If you’re giving your child opportunities to earn more money and teaching them to save, it may be a good time to open a bank account for them. You’ll need to sign on as a joint account holder if your child is under 18. However, opening an account in their name allows them to track deposits and withdrawals and learn to balance their account while receiving your guidance.

High School

When your kids enter high school, you can start teaching them about things they’ll need to know to be successful when they move out on their own and for the rest of their lives. Here are four tips to help set them up for success as they go to college and start their careers:

8. Have Them Get a Job

High school kids are usually old enough to get a job outside of the house. You’ll need to decide as a family whether your child will work during the school year or only during the summer and other breaks. When your teen gets their first paycheck, they may be surprised to see how much (or little) of their hard-earned money they get to keep. Take advantage of this opportunity to teach them about income tax and payroll taxes and how taxes affect their take-home pay. It’s also a good opportunity to discuss other deductions they’re likely to have withheld from their paycheck when they finish school, such as health insurance and retirement contributions.

9. Teach Them to Budget

When your child has a job and (somewhat) steady paycheck, you may want to shift some of the responsibility for purchasing necessities to them. Decide what you will pay for, how much you’ll spend and what your child will be responsible for buying. Set expectations before your child starts their new job so there are no misunderstandings.

10. Teach Them About Investing

As kids get older, saving money in a piggy bank won’t be enough to achieve their long-term financial goals. The teenage years are a great time to teach them about investing and the power of compound interest. Show them examples of how their money can grow if they invest it for the long term. Don’t forget to explain the risks associated with investing and how it’s best for long-term financial goals like retirement, not for money they may need in the next few months or years.

11. Teach Your Child About Credit

Unless your child is 18 or older, they won’t be able to get their own credit card or loan. But that doesn’t mean you can’t teach them about the importance of credit and how it can influence their ability to get a loan or credit card in the future, the interest rate they’ll qualify for and how much they’ll have to pay for home and auto insurance. Teach them how credit works, why it’s important, what they can do to build credit and how to monitor their credit history.

You can add your child as an authorized user on your credit card account before they’re 18 to give them an intro into how credit cards work. While they won’t be responsible for making payments toward the statement balance, it’s a good idea to have them send you money for their purchases so they understand credit isn’t free money. You can show them your online account and explain the importance of paying your bill in full to avoid interest. When they start to build credit, they can check their free Experian credit report anytime.

The Bottom Line

Kids don’t learn how to manage money responsibly by accident. They need to be taught. Responsible money management is a skill that takes time and practice. When you start teaching your kids about money early, they’ll have the skills they need to make sound financial decisions throughout their lives. They may experience a few bumps along the way, but your guidance can help your kids avoid many common money mistakes many young adults make—like racking up high-interest debt and living beyond their means—and recover faster if they do have a misstep.

For any mortgage service needs, O1ne Mortgage is here to help. Call us at 213-732-3074 to speak with one of our expert loan salespersons today!

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