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How To Teach Your Kids To Be Financially Savvy

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Steve Pomeranz, Teach Your Kids Finance

Teaching your kids how to be smart about money is one of the most valuable gifts you can give them – because it will continue paying off for them for the rest of their lives. I’ve often said that if someone had taught me the basics about money and investing by the time I got to high school – instead of me having to learn those things on my own much later in life – I might’ve been a millionaire by the time I was 30

The lack of even basic financial education – just the simplest things like budgeting, saving, and how to balance your checkbook – is a huge shortcoming in our educational system. Unless they learn some things at home, most kids graduate from high school, or even college, knowing next to nothing about how to manage money.

Why It’s Important To Start Early

The good news is that you can start teaching your children about money at a very young age. That means you’ve got plenty of years to help them learn how to be financially savvy and develop good money habits. In fact, a Cambridge University study found that kids start forming money habits by age seven. But if they’re already developing habits related to money by that age, then the smart play is to start teaching them money lessons before then.

Give Your Child A Jar

Here’s a great money present you can give your kids: a big glass jar. You can start them out with this first “savings account” as early as age four or five, and use it to teach them a wealth of important lessons about money. A glass jar is a better choice than a bank or safe that they can’t see into. With the jar, they can SEE their money growing. Just the fact that they can see their money is likely to make them take more of an interest in it.

You can teach them both the value of saving and the joy of wise spending with their savings jar. For instance, you could allow them to – say, once a month or once a quarter – take some money out and go buy something they want – a toy, a comic book, whatever it is will be all the more cherished because they bought it themselves. By only allowing them to take out part of the money in the jar, you reinforce the value of savings, of never letting the well of your “emergency fund” run dry.

You can even start planting the seeds of knowledge about investing by offering them a 401(k) deal: Offer to match their contributions to the jar, week by week. (Then just pray that your six-year-old doesn’t turn out to be an entrepreneurial genius who starts making $1,000 a week.) 

Assistant Shopper

This tip comes courtesy of Neale S. Godfrey, founder of the Children’s Financial Network in Chester, NJ, and is another smart money activity that you can get even young children, age three to four – involved in. First, ask your son or daughter to help you clip coupons for a grocery store trip. Then, when you’re in the store, give them custody of the coupons and tell them to watch for the items you have coupons for. For one thing, this is a great way to keep your child occupied during a shopping trip and keep them from getting bored. But more importantly, they can take pride in feeling like they’re really helping Mommy out. To top things off, you can say “thank you” for their help and reward them by giving them cash equal to a percentage of the money you saved with the coupons, to put in their savings jar.

Pay Them For Their Work – Don’t Just Give Them An Allowance

Avoid the common mistake of sending a very wrong message by just giving your kids an “allowance” every week. Instead, pay them for their services – like doing chores, helping out around the house. You want to teach them clearly that money is earned – You shouldn’t expect people to just give it to you for being alive. This is a simple, basic, but oh-so-important lesson about money to teach your children.

Start Investing Early

By the time they’re age 10-12, you can get your kids into learning about and getting actively involved in investing. Maybe turn your family into an “investment club” that meets regularly to discuss possible investments. You can either “play” investing or make actual investments. Either way, you can offer a reward each month for the “Best Stock Picker”.

Part of the investment club experience can include teaching them the basics of portfolio diversification, asset classes, index funds, and ETFs.

Teach Your Children How To Secure Their Retirement Years By Age 21

When your kids are in their teenage years and, hopefully, either working part-time or at least getting a summer job, you can teach them the “secret” of how to have their retirement all set by age 21. What’s the secret? – The magic of a Roth IRA, where investment gains accumulate tax-free.

Here’s some really wonderful math: If your child contributes the annual maximum allowed – $6,000, as of 2019 – to a Roth Ira, and does so just from age 15 to age 21, they can be virtually all set to live comfortably in retirement without ever contributing another penny to a retirement account. The math, in a nutshell, works out like this:

– by age 21, they’ve contributed $36,000 to their Roth IRA (6 years x $6,000 a year)
– thanks to the miracle of compounding, if their Roth account investments average a 10% annual return, then in 40 years, when they’re just age 61, that $36,000 will have grown to just over $1.6 million! (and don’t forget, the investment gains in a Roth IRA are TAX-FREE!)

In closing, here are some other smart money activities you can consider doing with your children:

  • Encourage them to start a coin collection; Coin collecting can be a lot of fun, and it can also potentially be very profitable for them
  • Ask them to help you “comparison shop” – making choices about things like going with the discount, generic brand or paying a little more for higher quality name brand items; These are exactly the kind of financial choice they’ll have to make for themselves as adults
  • Teach them to give as well as get: Encourage them to pick a charity to support regularly. With most kids, it doesn’t take long for them to realize that giving can feel just as good as getting.

To learn more about these, and other, ways to teach your kids to be financially savvy, see Anna Attkisson’s article, “Teaching Kids About Money: An Age-by-Age Guide”. Also check out these resources for teaching kids about money.

Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. There are no investment strategies that guarantee a profit or protect against loss. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however, their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by the radio show.

I've been an investment strategist and adviser for over 35 years, leading with a mission of unbiased advice to educate and protect listeners on my weekly radio show on NPR affiliates nationwide. I have been named a “Top 100 Wealth Advisor” by Worth Magazine and “Top Advisor” by Reuters.