How to Teach Children Good Financial Habits

As a parent, you play a vital role in shaping children’s financial habits and future success. Teaching children about money is an important part of their overall education, and can set them up for financial stability and independence in the future. From understanding the value of saving and spending wisely, to learning how to budget and invest, there are many valuable lessons that you can teach your kids about money. In this article, we’ll explore some tips and strategies for helping children develop good financial habits that will serve them well throughout their lives.

Start Early

First and foremost, it’s important to start early. Even young children can learn basic concepts like saving and spending, and the earlier you start teaching them about money, the more likely they are to internalize good financial habits. As a parent, you can set a good example for your children when it comes to financial matters. Show them how to budget, save, and spend wisely, and try to be open and honest with them about your own financial decisions.

There are many everyday opportunities to teach kids about money. For example, you can use grocery shopping as a chance to teach them about the value of different items and how to comparison shop. Similarly, giving kids an allowance can be a great way to teach them about budgeting and spending. You can set up a system where they must save a certain percentage of their allowance and can spend the rest. Alternatively, you can link allowance to specific chores or responsibilities, teaching your kids the concept of earning money through hard work.

The Art of Saving

Teaching children the value of delayed gratification can be a helpful way to encourage saving. When they want to make a big purchase, encourage them to save up for it, rather than buying it right away for them. This can help them understand that good things come to those who wait, and that saving can be a rewarding experience in and of itself.

You may also want to consider using rewards as motivation to encourage good saving habits. For example, you could offer to match the money that your children save or give them a bonus for achieving certain financial goals. Additionally, some parents choose to offer financial incentives for good grades or other achievements. Just be sure to set clear expectations and to follow through on your promises.

Chores and Goal-Setting

Encourage your kids to earn money by doing chores for your neighbors such as mowing the lawn, shoveling snow, or watering their gardens. This can also help them understand the value of hard work and the importance of being financially independent. I remember back when I was in high school, my neighborhood was hit by a massive blizzard. My friends and I saw this as an opportunity to make some money for our desired gaming controllers. We went door-to-door offering our shoveling services to our neighbors and before we knew it, we had earned enough money to go ahead and purchase the gaming controllers. It was a great lesson in the value of hard work and the rewards that it can bring.

It’s a smart idea to have a conversation with children about their financial aspirations. Discuss their goals for saving money with them and teach them the importance of doing so. To help kids understand the advantages of saving over time, it can be useful to introduce them to concepts like compound interest. If you are unfamiliar with the term “compound interest,” it is the interest earned on a loan or investment from both the principal and accrued interest. When kids grasp the concept of compound interest, they may make wise decisions about how to save and invest their money.

For instance, if a child learns to set aside and save a little sum of money every month, the compound interest on those savings can add up considerably over time, assisting them in saving for those larger, more desired expenditures. For example, if you invested $1,000 and earned 5% annually on that money, your interest in year one would be $50, then $52.50 in year two, $55.13 in year three and so on, until after ten years it would be worth over $1,600. This can help teach them the value of making long-term investments rather than only concentrating on short-term objectives.


Teaching children how to budget is crucial because it will help them understand where their money is going and enable them to make wise financial decisions. Encourage your kids to make a budget to keep track of their income and expenses if they work or get an allowance. When children understand how to manage their money, they may make plans and establish objectives for themselves. This can help them to learn financial responsibility and to make the most out of their resources.

Children who use a budget can also learn about conserving money and the benefits of future planning. Children can learn to prioritize their spending and make the most of their money by setting money aside for long-term goals like saving for education or purchasing a house. Additionally, budgeting can aid them in forming wise financial practices that will benefit them throughout their lives, such as controlling spending and avoiding excessive debt.

Lessons for Young Adults

When your children are college age, it may be even more crucial for them to understand how to manage their finances well. It’s critical that students comprehend that creating a budget is more than just cutting expenses; it entails making sure that money is being spent properly and on priorities. Students can make sure they have enough money to satisfy their necessities and yet have some left over by learning how to budget properly.

Opening a custodial account in their name is an additional step that parents might consider. A custodial account is set up and maintained by an adult (the custodian) on behalf of a minor (the beneficiary). The child legally owns the account, but the custodian has control over it and can decide how the money is invested. This can help them save money for the future and serve as a teaching tool for financial management and investment skills. Keep in mind that at certain ages (18 or 21 depending on the state), these accounts become the property of the child and the custodian will no longer have control over the account.

Best Practices For Credit Cards

As your kids become older, you might also think about enrolling them as authorized users on your credit cards. This can be a terrific way to teach them about how to responsibly handle credit and to assist them in establishing credit at a young age. Your child will be able to use your credit card as an authorized user and make transactions, but you will be responsible for making the payment. You may teach your kids how to responsibly use credit and establish a high credit score by establishing clear rules and expectations with them and carefully monitoring their credit card use. Remember, even as an authorized user, your child’s credit activity will be recorded on their credit report, so it is critical to lead by example and instill in them the value of making responsible financial decisions.

Other Lessons in Finance

In addition to the advice given so far, you could also teach your kids the following financial habits:

  • Educate children on the significance of giving back. Children can grow to feel generous and responsible for others by learning about philanthropy and being encouraged to donate a percentage of their income to charity.
  • Inform them about responsible borrowing. Help your kids comprehend the loan’s terms and conditions and the significance of making on-time payments if they need to take out a loan for a car, education, or other purpose.
  • Promote the creation of an emergency fund for them. Help your children see the value of having a backup plan for money in case of crises or unforeseen costs.
  • Tell them to keep their financial information secure. Help children realize the dangers of sharing sensitive information online by teaching them the value of keeping their personal financial information private and secure.

By following these tips and encouraging good financial habits, you can set your children up for success and help them navigate the financial world with confidence and knowledge.

Presented by Lucas Campbell