Key Points

• It’s important to start teaching your child about financial principles, and there are many ways to do so at every age.

• Teach practical money skills as your child receives monetary gifts, help them divide income into spending, savings and giving.

• A healthy money mindset is crucial in the importance of establishing strong financial habits to become financially responsible. 

Teaching children about finances early in life is an important step to building the foundation for lifelong financial security and independence. Financial literacy will not only give kids the knowledge to create healthy habits and mindsets but also the confidence to be financially responsible and make good choices.

Children and Finances: Start Young

The saying "the earlier the better" is especially true when it comes to learning about finances. Parents play a pivotal role in teaching age-appropriate financial lessons.

Toddlers and young school-age children are at great ages for you to reinforce positive behavior. Let them earn ‘play bucks’ that can be turned in for small incentives such as screen time, a special meal, or a small toy. This teaches them the concept of earning and saving, giving them a sense of ownership to spend on something of their choice.

In the tween years, help your child open their first bank account. Replace ‘play bucks’ with an allowance and encourage kids to save a portion of their allowance and monetary gifts received through the year. Nurture behaviors like differentiating needs from wants and learning how to wait for an item to go on sale before making the purchase. This can help foster your child’s sense of accomplishment as they save their earnings over time to purchase a desired item or special event.

As kids start to earn their own income in the early and late teenage years, more complex topics like investing and even retirement planning can become relevant. Open a brokerage account with guidance, and help them manage their money in a safe way. Use age-appropriate resources that demystify stocks, bonds, and other investments. If they’re interested in a particular brand or company, this would be a great opportunity to invest in individual stock. With earned income, they can also open a Roth IRA and begin their retirement savings.

Children and Finances: Practical Money Skills

A healthy relationship with money starts at an early age. Effectively teaching children about money covers a wide range of practical money skills, such as creating a budget, saving, investing, and managing debt. Each one of these skills empowers children and young adults to take control of their spending habits and learn responsible ways to spend, save, and gift their money. 

Look for every opportunity to instill financial literacy. Whether you start with ‘play bucks’ or an allowance, help guide your child to divide it between spending, saving, and giving. Give them the opportunity to achieve a financial goal and spend their money purposefully.  Help them establish some short-term and long-term savings goals — and celebrate when they are reached! For older children, incorporate real-life experiences like household budgeting, grocery shopping, and family financial decisions. Embrace these opportunities to reinforce the practical use of financial skills.

There are many digital tools available today to make financial education interactive and fun for kids. Using apps and games helps turn complex concepts into engaging activities. Build a library of books and online resources for different ages and learning styles. According to Barron's MarketWatch, more high schools are requiring financial literacy classes to graduate. This is a great opportunity to educate teens and engage in a class they are taking. Next Gen Personal Finance is another source that offers free online resources, education, and games to teach personal finance to kids.

Keep in mind, it’s okay if mistakes are made. When your child makes a mistake, look at it as an opportunity to inspire accountability. It’s far better to learn from a mistake now rather than later in life when it could be more impactful to their overall financial security. Celebrating successes and viewing failures as growth opportunities will build resilience.

Children and Finances: Financial Values

While knowledge is crucial, so too, is a healthy money mindset towards their finances. Overconsumption and materialism are all around our kids, especially with their use of social media.  Kids need help navigating life on life’s terms. They don’t need everything they see to be happy.  Encourage them to develop their own life values and learn what’s important to them. They don’t have to compare themselves to another. Have them give their time and earnings at an early age to a charity that interests them. Developing a healthy mindset can shape their attitude towards others, how they learn to give, and their confidence to invest.  

Children and Finances: Overcoming Challenges

As with every aspect of parenting, you may face challenges in teaching financial literacy at home. There are common money misconceptions and fears. Be aware of cultural and socioeconomic barriers that could influence your child's money attitudes. Addressing them in an open, non-judgmental way gives your child space to decide what’s right for them.

Peer pressure and rampant consumerism pose big hurdles, with kids (and adults) bombarded by messages promoting spending and instant gratification. The earlier children can learn critical thinking skills, the more self-confidence they’ll have to resist pressures. They’ll better learn how to make financial choices aligned with their values and goals.

By teaching financial smarts to your kids, you empower them with the knowledge, skills and mindset to confidently navigate their finances with integrity.  This lifelong journey requires patience, consistency and a commitment to growth for both you and your children.

Here at Capstone Financial Advisors, financial literacy is a core belief. We want our staff and clients to feel empowered through knowledge to make decisions based on our professional  recommendations and insights. Investing in our children's financial literacy may be one of the most precious legacies any of us can leave behind.

Disclosures:

This article is not a substitute for personalized advice from Capstone and nothing contained in this presentation is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed by other businesses and activities of Capstone. Descriptions of Capstone’s process and strategies are based on general practice, and we may make exceptions in specific cases. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review by contacting us at capstonefinancialadvisors@capstone-advisors.com or (630) 241-0833.