How Parents Can Teach Kids Financial Literacy While Learning It Ourselves

Financial literacy is more than learning about how to make money. If you’re wondering how to save and grow it, there’s no easier way than to learn alongside your kids.

Illustration: What is financial literacy and how can we learn it alongside our kids?

Illustration by Michela Buttignol for Parents

Across the country, October is National Financial Planning Month, a time when you might want to look back on your retirement statement or rethink investments for the new year. The month also serves as a good reminder to teach the ones you love a thing or two about money basics.  Whether it’s explaining the value of a dollar or delayed gratification for a beloved toy, you can easily explain to children where money comes from, how best to keep it, and the ways that we can use well-earned cash to shape the world we live in.

Too often, financial literacy is something we expect our kids to learn after they get a job. But by then, well, it’s already too late. So how young is too young to talk to kids about money and finances? Experts say there’s no such thing as too soon. And while you might think you already know all there is to know about money, the truth is that the job and housing market keep changing, and so too does wealth building. Chances are, teaching your kids the basics of credit, debt, savings, and investing, will also help you learn a thing or two about how much the economy has evolved over the last few years. There’s no time like the present to tackle any hesitations you might have about teaching your kids what they need to know to become financially independent. 

What Is Financial Literacy?

Financial literacy sounds flashy, but its meaning is pretty straightforward. Simply put, it is the know-how to budget, track expenses, save, plan for retirement, and manage debt. These basic financial skills are foundational concepts that later help young adults balance their needs against their wants, and help adults decide between risky investments and well-leveraged debt. Without these fundamentals early in life, kids can fall into habits that equate money (or gifts) with happiness, love, and entertainment. In the long run, some of these patterns are hard to break. So it’s best not to rely on schools or their peers to teach your children the meaning of money. From tots to teens, your kids will eventually hear about everything from allowances to Zelle, so build a healthy relationship with them by talking about money and wealth building directly.

Here, some tips for how to teach kids about money while you're still learning about it yourself.

Start these conversations young

Money-saving expert Andrea Woroch says it’s never too early to start talking about finances, and it can be as simple as taking them shopping or doing everyday chores around the house. “Your children learn from your habits and the way you spend or save and even talk about money will shape how your children manage money in the future, even if you don't realize it,” says Woroch. It can be as simple as using positive language when you talk about money. Try saying “we have to save up for that” or “that’s not how we choose to spend our money,” instead of “we can't afford that” to set a healthy financial goal for your impressionable child. 

Sofia Ramirez, a senior advisor at Tend, suggests creating a saving chart. “This visual shows their progression towards meeting a financial goal and teaches your kids how much things cost, and encourages saving.” Even for early learners, this visual tool can help them learn to add and subtract.

Be a model, not a mirror

Most people think that the easiest way to teach their kids about money is to let them watch what they do—from the grocery aisle to online shopping. Nice try! You might be surprised to see your own vices mirrored back after your kids mimic your possibly bad habits. Instead, practice being a role model of what you hope they (and you) would do when confronted with money problems or opportunities.  

Woroch says including kids in setting up a budget for an upcoming event or big purchase can be a great learning experience. When you have to make a budget cut, think before you grumble. Watch how you talk about sacrificing short-term pleasure for long-term gain. Model your best behavior and, in so doing, you might convince both your kid, and yourself, that old habits are worth breaking. 

In fact, changing patterns in front of your children adds a heightened sense of accountability, which may help you stick to your new ways while instilling great habits earlier in their lives.

Play more than you preach

Rather than only teaching money matters through weekly allowances or during real-life shopping trips, incorporate financial literacy into family game night or screen time. Ramirez recommends Monopoly Junior or Monopoly, Pay Day, and The Game of Life, which teach money strategies over the long haul. These great educational board games can help your kids play around with money and try out the consequences of risk-taking.

While playing with funny money, parents would be wise to start conversations about why each kid—different from one another—made their own choices. This will help parents gain trust and become a confidante when there are real cash choices to make. Parents who listen more than they talk can tailor their message to each child’s needs as they grow up. Similarly, Ramirez recommends Financial Football and Saving Spree for online gamers.

Be sure kids have a bank account

“Help your children to find their first job and open a bank account. Whether it's watching your neighbor’s cat or babysitting—this is a great time to open their first checking account and work towards depositing a certain amount each month,” says Ramirez. For some people, this is easier said than done. More than 6% of American households (over 14 million people) are unbanked, which means they don’t use a bank for their primary financial needs. Many neighborhoods don’t have banks, but using local check cashing or money exchange services spells high transaction fees. Later, it becomes hard to build a strong credit history, required to access a bank loan for all major expenses, including a car, a home, and even education. So, it is crucial to go the extra mile to help your child find the right bank to support their future.

Many online banks offer great rates and new brick-and-mortar ones are popping up in expected areas. Do research together to compare banks and credit unions. Analyze the fees, interest rates, and terms of service. These early banking decisions are likely to stick with your children for many years to come, so never underestimate the value of taking the time to review them side-by-side. You also might discover that your own bank isn’t offering the best deal and may also want to make a switch.

Don’t forget to talk about debt

For high school students, now is a great time to start teaching them responsible credit card use. “Add them as a secondary user,” Woroch suggests, and “take the time to show your child the credit card statement, explaining how you have to pay it off by a certain date and the steps to manage it before the balance grows out of control.” Also, don’t forget to discuss annual fees and the protections that credit cards offer in comparison to debit cards. These perks may (or may not) be worthwhile to them in the future, but the identity theft protections are well worth a discussion.

For middle schoolers, it is easy to teach them a valuable lesson about debt. The weeks before gift-giving holidays, kids tend to start lobbying parents for purchases now against the promise of money soon to come from presents and increased allowances. Try teaching them about the cost of debt by charging interest—and explaining how it works. Ask them to pay a few dollars extra when it is time to settle their debt and set appropriate, enforceable repercussions in case they can’t pay you back.

Talk about the economy and news

"It's important to keep your child in the know with what's happening in the economy,” Woroch adds. “You can explain what you're doing now to adjust for inflation, which all comes back to balancing a budget.” Understanding the basics of how news moments and the global economy impact personal fianances will help them in the long run. 

Make gratitude and generosity part of the conversation

If your family is doing well despite economic downturn, you can teach your kids to appreciate what they have and encourage them to help others in need. Ramirez suggests that parents “increase children’s awareness about how money can benefit others, not just themselves, by encouraging them to raise money for a cause. This is also a great way to develop their social consciousness.

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