Teaching kids about money: 6 ways to raise financially savvy kids

Key Points

  • Whether earning it through an allowance or a job, teaching kids about money can help them learn how to save, spend, and grow their money wisely.
  • It’s important for kids to have their own money so they can learn how to spend wisely.
  • It’s never too early to teach kids the value of giving money to causes they care about.

It’s easier than you might think to help your children, grandchildren or nieces and nephews appreciate the value of money and grow into financially savvy adults. The best way to teach them is to give them hands-on experience. Consider these strategies:

1. Give them money of their own

Children learn to appreciate the real-world prices of goods quite quickly when the money comes from their own pocket.

  • Start giving them an allowance at age 6 or 7, and clarify which items they must now pay for themselves. For younger kids, it might be candy at the checkout counter; for older children, it might be movies out with friends and music downloads.
  • Consider increasing allowances— and financial responsibilities—over time. For example, when children hit the preteen/teen years, start giving them money to cover their most routine expenses, from school lunches to clothing costs. It will help teach them how to budget and spend.

2. Encourage a three-way split

To help prepare children to be good savers and philanthropists later in life, have them split their allowance or job earnings into three jars or envelopes: 

  • Spending
  • Saving
  • Donating

3. Let them give from their hearts

Like adults, children tend to be more generous when they give money to causes that move them. Look together for charities that match your children’s interests.

You can research charities at sites like the Better Business Bureau’s Wise Giving Alliance, Charity Navigator and CharityWatch.

4. Put savings in overdrive

It’s incredibly motivating to learn how money grows with the help of compound interest.

  • Help pre-teens open a savings account and teach them how their bank pays interest.
  • Provide an additional incentive by offering a match—50 cents on every dollar or whatever amount you choose—on any money your kids, grandkids or nieces and nephews deposit into their account.
  • Depending on how long it will be before the children tap their savings, your financial advisor might suggest looking at certificates of deposit or money-market accounts that offer better interest rates.

5. Interest them in investments

During their teen years, kids may be ready for hands-on experience with stocks, bonds and mutual funds.

  • Talk with your advisor about whether it makes sense to open a custodial brokerage account for your kids or grandkids.
  • You can choose investment options together and give your teens a chance to own a few shares of, say, a favorite computer company or clothing retailer.
  • Tracking their account performance is an excellent way for children to learn about the ups and downs of the stock market.

6. Prep for college

When children enter high school, start talking with them about their role in helping to pay for their college education.

  • Well before they start filling out college applications, encourage your teens to work part time and earmark some of their paycheck for a college fund or 529 plan.
  • Have them research scholarships, compare the costs of various schools and begin budgeting for incidentals like text books, clothing and dorm costs.
  • Help your teen open a checking account and learn to responsibly use a debit card, which he or she may rely on in college.
  • You may consider introducing your teen to credit cards, too. But be sure to talk openly about when and why the card can be used, insist that balances are paid off every month and be clear about how you’ll be paid back if your teen charges more than he or she can afford. This is your teen’s "credit with training wheels" period.

Before you know it, your children, grandchildren or nieces and nephews will be independent adults handling their finances completely on their own. And thanks to your good guidance, they’ll be well-prepared.

For more information on how to get your children, grandchildren or nieces and nephews on the path to financial responsibility, talk to your Ameriprise financial advisor.