Teaching Kids About Money: Building Lifelong Financial Habits

As parents, we want our kids to be carefree for as long as possible: to have “few” responsibilities, hang out with friends and enjoy the naivety that children are blessed with as long as they can. The realities and the stress that follow real life come upon us quickly enough and those years when our kids are young and can enjoy a carefree existence are fleeting.

So here comes the popular question, when is it a good time to teach our kids about money… and how?

By the time kids are six or seven and tackling basic math at school, they’re probably ready to learn more about money—what it’s worth, how to save it, and how to plan for the future. Not only are tweens and teens primed and ready for financial basics but teaching them the benefits of saving money from an early age helps set them up for a lifetime of financial security.

If you are a parent you know, it's really hard to say no to your children. Especially if they are well behaved, doing their part to help out with the household (age-appropriate chores of course) and are saying please and thank you. All of a sudden just like that, it has gotten out of hand. If you have young children like me, they expect something in every store you drag them to, just because they behaved. At six years old and for some time now as I’m heading to the cash my daughter will ask me “mom was I a good girl in the store”… I know exactly what she means! Kids are smart, they catch on quickly and it's now expected every time. We find ourselves buying our child’s good behaviour – when they should just be behaving without reward! They now think money is a fictional currency, and once that happens it's hard to turn it around.

When I was a kid and earned money for chores, I saw the money, I held it in my hand. I brought it to the store, spent it and saw it disappear. It’s not like that today. Kids are earning allowances and as parents we are shopping online for our kids on behalf of a job well done and money earned and the package gets dropped on the door step from the Amazon driver and the money is never seen. The value of that purchase becomes harder and harder to quantify to our kids and the ability to have a teachable moment about the value of that dollar they just spent is virtually lost.

Giving an allowance

There are many opinions surrounding paying children for chores they should be helping with regardless, and incentivizing as a way to broker help around the house is viewed as counterproductive. This is absolutely true. However, there are ways we can get our children to learn the value of a dollar and still be productive members of the household and have non earning potential chores completed simply because we're trying to raise good well-rounded kids. As I always say when referring to my daughter, I am not raising a child, I am raising an adult. So, it’s very important that we find the balance between both. Kids need to know they need to support and help out because it’s the right thing to do, but they also need to be given opportunities to save up for things they enjoy. Teaching our kids about money is single handed one of the most important lessons we will teach our kids. And it's not easy.

Why saving money early is important

If financial freedom is the goal in adulthood, then saving money is one of the foundational building blocks needed to make that goal a reality. Unless your kids learn how to save their own money, working toward a place of comfort and independence could be an uphill battle for them (unless your family has a bottomless well of cash - more thoughts on this but that’s a topic for another day). That’s why it’s a good idea to get them used to this idea early so it doesn’t come as a great challenge later on. Just like anything else it’s a habit. Once something becomes a habit, it’s part of your daily life. Why do we want to teach our kids to swim so early on in life, it’s an important life skill they need to learn. Sure, you can learn to swim later on in life, but will it be so easy? Children are like sponges; early learning can set them up for life.

Saving money teaches kids the value of a dollar

When it looks like buying a T-shirt or a week’s worth of groceries is as easy as tapping a debit card, we can’t really blame kids and teens for not thinking about how to save money. While we are not saying don’t set up a bank account for your kids, that’s not what we are saying at all, certainly have them deposit that birthday cheque in their bank account but have them take out their spending money from the machine. It’s very hard to teach kids about money when they can’t see it. Even as adults it's so easy to tap the debit card but how much more conscious about shopping would you be if you left your debit card in the car and did your groceries with cash? Some might say it's 2023, when you can pay with your phone why carry cash? This is true, but convenience also breeds bad habits as well, so it doesn’t matter what access we have to technology if it's easier to create better habits by doing things the hard way, then we should. Especially if we are taking the time to teach our kids about money.

The earlier kids start, the sooner they can make saving a habit

If they receive a $50 cheque as a gift, deposit the cheque and let them take out half. As our kids get older, they can log into their own online bank account and track their savings and spending themselves. You save half, you get to spend the other half. If they made $350 from their part-time job let them keep $175, the other half they have to save. If we help them establish these healthy saving habits early on, it will be all they know. It's just what you do. It will be their learned “way of life”.

Spending is easy, but learning how not to spend money is hard—even for adults. The earlier kids learn how to save money, the more it will become a habit and part of their value system.

It helps kids become self-reliant and independent

It may be less effort for your tween or teen to dip into an account at the Bank of Mom or Dad, but do you know what feels better? Not needing to ask for permission. By saving money for a future date—whether they choose to spend it on a pizza night or a grad trip— kids will realize that they can learn to rely on themselves to get what they want. Now that’s a powerful feeling!

5 money-saving tips for kids and teens

There are plenty of ways that kids can start to save their money, and they all involve either earning more or spending less. Get your children started with one of these five ways to save money for a rainy day or for bigger purchases they have their eye on.

1. Use the “pay yourself first” technique

Most people pay bills and other necessities first, splurge a little and then attempt to save what’s left over. Teach your kids there’s a better way. The “pay yourself first” technique involves saving a certain amount of the total (say, 20 per cent) and then paying for necessities. If there’s any money left, that’s when they can treat themselves.

Though this technique is often used by people who have a steady pay-cheque, it’s something that kids can practice with their allowance, gifts or money from part-time jobs.

2. Find easy spending trade-offs

A good habit for parents and kids alike to get into is analyzing purchases before opening their wallets. Encourage your child to ask themself these three questions:

a. Do I need this item?
b. If I don’t need it, how will it make my life better?
c. Is there a way for me to make my life better in a similar way that costs less money?

3. Find ways to earn more cash

Instead of offering to buy your child new sneakers when their old ones are still perfectly functional, encourage them to take on a bit of extra work to earn the money. Here are some standard money-making ideas for kids and teens outside of the day-to-day household operations we should avoid paying our kids to help out with.

Pet sitting
Babysitting
Wash and clean the cars
Seasonal yard clean-up
Help out with everyone's laundry
Mow lawns, rake leaves or shovel driveways
Tutor other students

4. Take advantage of student discounts

Whether your child is in middle school or looking ahead to university, they could be eligible for a student discount on their favourite subscription services, electronic brands, fitness memberships, and clothing stores. Sometimes these discounts are store-based (meaning they have to sign up with the individual retailer) and sometimes they’re available through a student discount card. Either way, signing up could mean 10 to 30 per cent in savings—or sometimes more—on things your kids already buy. Using these discounts is a smart money-saving tip that takes minimal effort.

5. Put cash gifts from birthdays and holidays directly into savings

If Grandma loves to slip a crisp $50 bill into birthday cards have your child save part or all of their money from those big events for a larger, more rewarding purchase down the road.

Teaching kids and teens how to save money isn’t a one-time talk. (If only it were that easy!) To help your child develop good habits, money talk needs to become part of a regular routine – remember we are trying to form a habit. Learning how to save money early is one of the best ways for kids to develop positive values and healthy habits when it comes to money. It’s a lesson that is absolutely invaluable and probably one a lot of us wish we were also taught early on ourselves.