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Raising Money-Smart Kids: Best Practices and Practical Tips for Parents

Updated: Nov 12, 2023

Hey there, parents! As an educator who works to help parents teach their kids about finance, I understand the challenges you face when it comes to raising financially responsible children. In today's fast-paced and complex world, instilling financial literacy in our little ones is more crucial than ever. So, let’s dive into some effective strategies and best practices that can help you raise money-smart kids.


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Why Financial Literacy Matters for Kids

Financial education isn’t merely a matter of teaching kids how to count coins or save money—it's about empowering them with essential life skills that will pave the way for a secure future. Numerous studies conducted by renowned institutions, including the University of Cambridge, consistently highlight the profound impact of early financial education on a child’s future financial behavior.

One such study published by the University of Cambridge’s Centre for Family Research found that children develop their money habits as early as age seven. This early imprinting of financial behaviors underscores the importance of starting financial education at a young age. When children grasp basic financial concepts early, they develop a strong foundation upon which complex financial knowledge can be built.

By introducing financial literacy to children from an early age, parents are not just teaching them about money; they are instilling valuable life skills. Financially literate children are better equipped to make informed decisions, plan for the future, and navigate the increasingly complex financial landscape. This knowledge empowers them to avoid common pitfalls like excessive debt and impulsive spending, ensuring a more stable financial future.

As parents, you have the incredible opportunity to shape your child’s financial future positively. By starting early and providing them with the tools they need to navigate the financial world, you are giving them a priceless gift that will last a lifetime. Remember, the lessons you impart today are the stepping stones toward a brighter and financially secure tomorrow for your children.

The Role of Parents in Teaching Financial Literacy

As a Parent, your role in shaping your child’s financial future cannot be overstated. As the primary influencers in their lives, your attitudes and behaviors towards money serve as a powerful model. Children observe and absorb, learning not just from what you say but from what you do. Engaging in open and honest conversations about finances eliminates the mystery surrounding money and instills a healthy understanding of its importance.

Influencing your children's financial future begins with showing them your positive money habits. By being open about discussing finances, you foster an atmosphere where questions are welcomed, and knowledge freely flows. Your actions become the cornerstone of their financial principles. Demonstrate the importance of hard work, investing, prudent spending, and saving right from the start.. It’s crucial to understand that these early lessons go beyond shaping their financial intelligence; they instill confidence, responsibility, and a profound sense of command over their destiny. In your hands lies the ability to nurture financially astute individuals and also to mold self-assured, empowered decision-makers.

Your children copy your positive financial behaviors, just like they mimic the rest of your behaviors. If you use your actions to show them a positive path through the world of financial literacy, they’ll come out the other side being strong, confident, and capable individuals. Thus, you play a pivotal role in sculpting not just their financial acumen, but also their character and resilience, preparing them to confidently navigate life's intricate pathways.

Best Practices for Teaching Kids About Money

Start Early:

As highlighted earlier in the article, children begin forming their money habits by age seven, underscoring the urgency for proactive parental involvement. Beyond discussions, parents can actively engage their kids in age-appropriate activities. Start with simple chores and allowances, teaching the value of earning money. Create a visual savings chart, encouraging them to save for desired toys or activities. Take them grocery shopping, involving them in budgeting decisions. For older children, open a savings account, explaining interest and compounding. Implement family financial goals, fostering a collaborative approach. Encourage entrepreneurial ventures, igniting creativity and financial acumen. With these hands-on experiences, children not only grasp financial concepts but also develop practical money management skills, ensuring they enter adulthood with confidence, knowledge, and a strong foundation for financial success.

Lead by Example:

Children are keen observers, learning by watching the adults around them. Take the opportunity to model responsible money habits openly. We discussed this in the Role of the Parents section; but it’s worth reiterating. Your kids will copy and emulate you. Don’t be afraid to tell them what you’re doing and why in regards to money.

If you have a tradition of sitting down and reviewing your weekly or monthly budget on a set schedule, have your kids sit with you when you go over it! If you make investments, talk to your kids about why you do what you do with your money. Another easy one is credit cards. If you use a certain card to pay for groceries, and another for everything else, explain that to your kids and show them when you pay the bill every month!

Use Real-Life Scenarios:

mother teaching son

Everyday situations present invaluable opportunities for financial education. Transform routine activities into financial lessons. When your child expresses interest in a new toy, guide them in setting up a savings plan. Allow them to experience the joy of earning and saving towards their goal, instilling the concept of delayed gratification.

Similarly, grocery shopping can become a practical budgeting exercise. Provide your child with a set budget and involve them in selecting items within that limit. Discuss the choices together—comparing prices, understanding needs versus wants, and prioritizing purchases. This hands-on approach illuminates the real-world applications of budgeting.

Even family outings can involve money management! Give your child a designated budget for a day out and encourage them to plan activities within that budget. Whether it's choosing affordable entertainment or packing homemade snacks, these experiences impart essential financial skills while making learning both engaging and relevant.

Encourage Saving and Goal Setting:

When your kids are young, teach them the habit of saving by introducing them to a piggy bank or a dedicated savings jar. Encourage them to set specific goals, such as saving for a new toy or a favorite video game. Break down the goal into manageable amounts, making the process less daunting.

For instance, if they wish to buy a toy worth $50, help them understand that saving $5 per week means they can achieve their goal in ten weeks. This not only teaches them financial planning but also imparts the value of patience and discipline. Celebrate their milestones together, reinforcing the connection between effort and reward.

As they get older, start adding investing into the mix. You can either open up a brokerage specifically for them, or invest the money into your brokerage and just keep track of it for them (if you’re worried about assets counting against them when it comes time for FAFSA and college, this might be an option to consider). Teach your kids that we don’t necessarily invest for the short-term, but we do it for a long time!

By integrating these actionable steps, you're nurturing a lifelong savings mentality, equipping your children with essential financial skills for the future.

Teach Responsible Spending:

Budgeting isn't a skill reserved for adults—it's a crucial lesson for children too. Guide your kids in distinguishing between needs and wants. For instance, when shopping for school supplies, differentiate between essential items like notebooks and pens (needs) and optional items like decorative stickers (wants).

When they’re first starting out, their budget can be as simple as making sure they don’t spend more than their Allowance. But, you should quickly graduate them into keeping some for savings. Eventually, add in investing; and then charity as well!

The earlier children can learn to manage their income and outbound money streams, the better they will be in the real world! As they get more practice, you’ll likely start to see them putting more and more of their money into investments as well. They’ll start getting super excited when they see compound interest take effect!

These practical experiences create a strong foundation for responsible financial habits, ensuring they approach future financial decisions with knowledge and confidence.

Introduce Basic Investing Concepts:

Demystifying investments can start with simple yet powerful concepts. Begin by explaining how high-yield savings accounts accrue interest over time. Use relatable examples, like planting a seed that grows into a tree, to illustrate the gradual growth of money. Introduce the concept of compounding by showcasing how the interest earned not only adds to the initial sum but also earns interest itself in subsequent periods.

Next, add in stock market investments. Show them how the stock market is a big group of companies and you can buy parts of those companies and make money over time. This is also a perfect way to discuss risk in investing. Show them how some companies go down in value, while others go up. So the least-risky way to invest is to buy large groups of companies through ETFs, Indexes, or Mutual Funds. This way, if some companies go down but others go up, you’ll be safe! And don’t be afraid to show them your personal investments. Show them historical numbers where yours have gone down and come back up too!

By integrating these basic investing concepts into everyday conversations, you're providing them with foundational knowledge that sparks curiosity and lays the groundwork for a future understanding of more complex financial concepts.


Teaching kids about money isn’t actually all that hard. The basics of personal finance aren’t very complex and kids absorb everything. The real issue is making sure you understand the responsibility you have to actually teach your kids about personal finance!

Remember, you have the power to shape your child’s financial journey positively. So, let’s embark on this exciting adventure together. Start implementing these best practices today, and watch your kids grow into financially savvy adults who are well-equipped to navigate life’s financial challenges with confidence and intelligence. Here’s to raising a generation of money-smart kids!


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