Teaching Your Child Healthy Financial Habits: An Age-by-Age Guide

8/1/2018 12:00:00 AM - 4 min. read
You teach your children to use good manners, to do their homework, and to clean their room. But are you teaching them how to manage their money?

Healthy financial habits are an important skill that can never be taught too soon. The earlier children learn money management skills, the stronger their financial intelligence will be. Prepare yourself and your child for the financial road ahead with this age-by-age guide from First Service.


Financial Lessons for Children Birth to Toddler Years

Financial responsibility is a lifelong lesson. Because this skill is so critical, it is best to start learning at an early age. Parents can begin preparing even before a child is born and build upon the lessons they teach as children become ready.

1. Start Saving Early

The earlier you start saving for their future expenses, the better. That's because your interest, or dividends, will compound, increasing their savings. A custodial account, also known as a Uniform Transfer to Minors Account (UTMA), is a savings account you can establish at your financial institution in your child’s name and retain complete control of until s/he turns 21. Also, it is never too early to consider setting up a college savings fund with a financial advisor to get a jump start on tackling college expenses.

2. Pay a Small Allowance

You can begin to teach your kids the value of money as early as three years old. Give them a few coins or a dollar for putting up their toys. Once they accumulate an amount they could use on something small, take them to the store and allow them to use their money to make a purchase.

3. Use a Piggy Bank

Using a visual tool is an effective way of teaching children. Try giving your child a clear piggy bank to keep their money in, and take the time to explain the importance of saving in basic terms they will be able to understand depending on their age and comprehension level.


Financial Lessons for Children Elementary School Years

The primary school years are the perfect time to teach your child about money management, especially if you’ve been laying a foundation since their earliest days. Experts say to give your child a weekly allowance of $1 per year of age for completing extra chores or duties. Next, show them how to save, budget, invest, give, and have fun with their money using some of the following tips.

4. Show Simple Ways to Save

Have them deposit a percentage of their allowance into a savings account and select a unique item that they wish to purchase. Having to wait as they save helps teach your child delayed gratification and how to save for more significant purchases down the road.

5. Allow Some Spending

Spending is an integral part of budgeting, so don’t skip this step. Designate a portion of their money that they can spend on small purchases, such as a special snack or an inexpensive book or toy.

6. Invest Early

Teach the value of growing their money by investing in a longer-term savings vehicle, such as a custodial CD account. You can also contribute money to this area by agreeing to match whatever your child chooses to invest. When interest is earned, take the time to explain the basic principles of investing.

7. Start to Give Back

Charity is an essential principle for your son or daughter to learn early. Have them give a percentage of their money to a charitable organization, church, fundraiser, or any other worthy cause close to your family.

8. Have Fun!

Don’t forget to make learning how to manage money fun. “World of Cents” — an interactive kid-friendly game created by the NCUA — teaches basic financial principles, plus math, as kids build their own virtual worlds.


Financial Lessons for Children Middle School Years

At this age, your child’s needs and wants are more complex. They’ve likely moved beyond candy and toys to clothes and pricier electronics. Therefore, it’s time to elevate their financial literacy lessons.

9. Share Your Household Budget

Share your own household budget — at least at a high level — to give your child hands-on experience and perspective with finances. This exercise can give your child a broader, real-world view of how finances actually work.

10. Shop Wisely

A large part of any household budget is made up of expenses for things like food, clothes, and other necessities. Use these everyday opportunities to teach them how to spend responsibly by bargain shopping, using coupons, and any other helpful savings tips your family has picked up along the way. This is a great opportunity to task your child with real-world exercises, such as asking them to find the cheapest option for purchasing a particular product.

11. Teach Advanced Investing

You can also start teaching them more about the power of investing with an online investment calculator, which shows how compounding interest adds up. Also, they can begin contributing their own money to their college savings fund for a hands-on lesson.


Financial Lessons for Children High School Years

As your son or daughter is inching closer to adulthood, it’s time to start transitioning their money habits, accordingly. Below are some of the last lessons a parent can teach their children before they leave home and have to put their knowledge to the test.

12. Teach Advanced Budgeting

Hopefully, over the years you have given your child some basic lessons on budgeting, but now that they are older, it is time to expand and grow that knowledge. Begin by giving them their allowance monthly, instead of weekly, to teach them how to budget a more significant sum. Next, it is time for them to make their own budget and start to track where their money goes. Don’t forget the categories discussed above: saving, spending, investing, giving, and fun. For more budget tips for you and your child, check out our article on budgeting basics.

13. Save More for College

By ninth grade, start to discuss what colleges they want to attend, review the costs of each, and explain which schools you can afford, narrowing down their options. Also, stress the importance of getting good grades and applying for scholarships and financial aid. Taking these steps will help give your child a better understanding of the real costs of continuing their education. Recommend they start dedicating a percentage of their own money to start saving towards college.

14. Teach the Value of Work

Once they’re old enough, encourage them to get their first job and open a checking account. Give your child a bill to pay, such as their phone bill or car insurance, and have them continue to save and invest. These money management practices will successfully lead them to financial independence as they enter early adulthood.

15. Get Your Child His/Her Own Debit Card

Many people find themselves spending more frivolously when using debit or credit cards than they would if they used cash. Allowing your child the opportunity to become acclimated to using a debit card instead of cash can be a great step in overcoming this habit at an early age.

16. Always Be the Example

When it comes to kids, leading by example is often the best way of teaching. The same is true for financial intelligence. Start to model the behaviors you wish your child to emulate as they grow. As you do your best to budget and make wise financial decisions, your children will take note and do the same.

Need Help Starting?

The financial experts at First Service Credit Union have more than 40 years of experience helping families take control of their finances. From our unique youth savings accounts that offer special incentives for good grades to our one-of-a-kind college planning services, we have everything you need to make smart financial choices for you and your children.