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How to Teach Managing Money Wisely from a Young Age

Like sand through your fingers.

As adults, sometimes it feels like that’s how fast you go through your paycheck. One minute it’s in your account and the next minute it’s disappeared.

But much of your paycheck goes toward paying bills and necessary expenses (groceries won’t buy themselves, unfortunately).

If you have kids, grand kids, nieces and nephews, close friends with kiddos, or any other mix of children in your life, they are just learning about how to have and spend money. And since they don’t have bills to pay or expenses to worry about (so blissful!), they may not form the best spending habits.

Kids may be easily influenced by marketing – the average young person growing up in the U.S. sees anywhere from 13,000 to 30,000 advertisements on T.V. each year. And that doesn’t begin to touch the ads they see online, in print, at the movies, in a video game, or at school.

Much of what children learn about spending they’ll learn from their parents or other close adults in their lives. But you can start at early ages to teach them to make wise financial decisions. Think about the positive affects learning smart spending habits could have on multiple generations to come.

In this post, we’re bringing you ideas to help children learn to spend and save wisely at every age.

Learning to Spend Wisely for Every Age

• Age 3: Practice patience. This is true for three-year-olds in many ways, so it’s a good time to start working on something we need to be good at as adults: waiting. How do you respond when you don’t get what you want right away? And how much more rewarding will it be to wait? Play small games with your toddler: tell them they can have a cookie now if they’d like, but they can have two cookies if they wait an extra ten minutes. This can train them away from the instant gratification so prevalent in our consumer habits.
• Age 4: Work on counting. While they won’t know much about money yet, you can practice counting with coins anyway. Learn to separate coins of different amounts into separate piles, count how many coins there are, and learn the names of each.
• Age 5: Understand “no.” Since money doesn’t come in an endless supply, help teach your kids that they have to pick and choose. If they want a snack in the store or a new toy, help them pick between options instead of getting them everything they want. It might be subtle, still, but they’ll begin to understand that there are limits. Show them how you shop when you’re out – you go in with a list of items, you find the best deal (unit price vs. total price), you have a total dollar amount to spend, and so on. Saying yes to one thing may mean you cannot get another.
• Age 6: Consider an allowance, or possibly payments for going above and beyond doing extra chores or harder chores than usual. Work with your child on saving up for something they want while also teaching them to give some away and save some beyond the thing they’re focusing on buying.
• Age 7: Begin talking about what they might be interested in doing when they grow up. Talk about what they enjoy, and that one or two people in every family need to work to manage expenses. Talk about what you enjoy about your job or what someone else in your family enjoys about their work.
• Age 8: Begin to learn about what things in your home cost money. From your car to your house to your appliances to your “stuff,” talk about how you spend your monthly paycheck, how you track your spending, and how you’re intentional about where your money goes. Discuss having an emergency account for unexpected expenses such as an appliance breaking down or new tires when you hit a nail. Talk about how you save up for big “wants” purchases, such as a bigger TV or new equipment for your hobby.
• Age 9: Open a savings account with the child. Don’t let them withdraw money from it whenever they like, though they can use it to save up for major purchases such as a bike or a summer camp they want to go to. Consider matching or depositing more money once they reach certain amounts. The habit of savings can be a fantastic tool in life.
• Age 10: Talk honestly about credit cards. Many kids will see their parents or family members using them, and assume the money is “free.” “Just use your card” they’ll say when you say you don’t have money to pay for something. Walk them through how a debit card works, how a credit card works, how you budget for what you spend with each, and what it can cost you if you don’t pay off your credit card monthly. Round up in your examples: If I don’t pay back this $500 on time, I’ll owe another $75!
• Age 11: Bring awareness about advertising and how to understand it well. Count how many commercials you see while watching one TV show, or by looking through one magazine. Talk about how brand names aren’t the be-all, end-all, and how marketers are trying to get you to buy their product as their main goal. But also discuss how you can use that information. If a product makes a certain claim, you can research other products that offer the same for a better price. If its something very important to your child, then talk about how they can save up for it, but they may lose out on other, more affordable things or activities because of that effort.
• Age 12: Learn about making the best purchase. This is the time they’ll start to buy more or different items than they may have before. When you go shopping with the student, talk about quality, paying more for brand names, sustainable or Free Trade products, etc. Have a conversation about buying things that will last longer if it’s something they’ll need to last, or what else they can do instead of purchasing new (see checklist below).
• Age 13: Learn about the stock market. Investing is an important part of everyone’s future – it’s how we’ll be able to stop working one day but still have money for our expenses. Talk about the long-term focus of investing, and how the earlier you start, the better off you’ll be. Learn about a few options for investing – doing so yourself, with a tool such as E-Trade, trusting a company with low fees to invest it for you, such as Betterment, and using a financial advisor to manage your investments. Teach that many jobs come with retirement investment options and how you should take full advantage of them.
• Age 14: Time to start work. While it may not yet be a regular, part-time job, the child in your family or friend’s family can start to earn money. They can babysit, do yardwork, dog sit, or find other ways such as selling craft items at sales or on Etsy. Work through how to save up for larger items with them – that new pair of shoes might cost $150, which may equal 15 hours of babysitting, or three to four nights of work.
• Age 15: Open a checking account if your student is responsible enough. You’ll need to be a cosigner on the account, which will help you make sure they’re managing their spending responsibly. You can balance their checkbook with them every month and let them pay for some of their own expenses – sports equipment, activity fees, movie tickets. They’ll begin to live in the money in, money out world and learn its effect (can’t go to the movies with your friends this weekend because you bought those clothes last weekend).
• Age 16: Learn about balancing time. As teens get older, the demands on them increase significantly – school, sports, friends, part-time jobs, volunteering, and so on. Paying attention to their spending may go out the window. Sit down and talk with them if they seem overwhelmed, and practice learning where they can shift around obligations, chunk their time, and continue to make good choices.
• Age 17: Explain what a credit score is and how to earn a good one, which will affect everything from future home purchases to car loans to any other expenses they may need to loan funds for – even starting their own business in the future.
• Age 18: Depending on the type of education the teen is pursuing, they’ll need to understand some complications of school costs and student loans. Make sure they fully comprehend how loans work once they’re out of school and what other options they may have. Some may choose to work and pay for school as they go using employer matches to help. Maybe you can come up with a plan to match what they can save and lessen the amount of their student loans for a four-year college. They could also consider joining the military, which will later pay for formal education.

As children begin to make spending decisions, you can also walk them through a quick buying checklist:

• Do I already have something that’s similar? (Do I already have three green shirts?)
• Can I borrow it from someone (If this is for a formal, do I have friends with prom dresses I can borrow for one night?)
• Can I trade someone an item or service (Can I mow their lawn if they’ll help me build a school project?)
• Can I make it myself?
• Can I wait to purchase the item?
• Is this the lowest cost I can get for the quality I need?
• Can I find it at a thrift or secondhand store?
• Can I find any coupons or discounts online?

We all buy things. Things we need, things we want, things that support our life and hobbies and interests. But we are smart about it. We save up, we shop around, we wait patiently, and we find the best deal or the best option. Let’s make sure we’re teaching our kids, kids in our family, and our friend’s kids to do the same, to truly be financially stable and have an impact on all the people in their lives for generations to come!

For more thoughts on how to manage finances well in a family, check out our Smart Start Financial Literacy Guidebooks,  ebooks you can download for free here! And if you have any ideas you’d like input on, or questions to ask, we’re always here for you. Contact us today!