Teaching Your Children About Money

By:    Updated: March 12,2017

It is never too early to begin teaching your children about the importance of money. Although it's no secret that many children believe that money grows on trees, with proper guidance and understanding, your children will be able to learn important life lessons about saving, investing and budgeting. Getting your children on the right foot will help them to become responsible young adults.

Toddlers Can Save Too

Start teaching your children about money early. Although toddlers may not understand the concept of dollars and cents, they can learn the value of saving. Many parents use coins, dollars, stickers or stamps as part of a reward system for various tasks from potty training to good behavior. The accumulation of these rewards often results in a larger reward. This lesson in saving teaches young children that, in order to earn the "bigger" or more valuable prize, they must first save their smaller rewards. Perhaps the most important lesson to begin teaching is that once the saved rewards are gone, more must be saved up in order to get the next more valuable prize.


As your children grow and are able to take on more responsibility, establish a list of chores and pay them an allowance for completing them. Creating an allowance helps teach your children to be accountable for their actions through the use of financial incentives. It also provides them with a sense of accomplishment and it helps you with some of the work around the house. You should consider giving your kids their allowance in denominations that encourage saving. For example, if their allowance is five dollars, give them five ones instead of a five dollar bill. Encourage them to set aside at least one dollar from every five that they receive. You might also consider rewarding them for saving.

Family 401(k)

The family 401(k) plan offers your children an incentive to save. Under a family 401(k), mom and dad agree to match their children's savings up to an agreed upon amount. These plans encourage your children to earn and save money. They also prevent them from being discouraged by the time it may take for them to save large amounts of money. Family 401(k) plans are particularly helpful when your children want to buy a big ticket item such as a car or vacation.

Open An Account Or Two

Encourage your children to open a savings or checking account. By allowing your children to open a savings account, you help them to learn about the accumulation of interest as a reward for saving. Many banks offer student savings accounts which can earn interest. You can also open a checking account to teach your kids how to balance a checkbook.


As an alternative, you can open a 529 account which is a college savings account that allows your kids to begin saving for college while they are still young. Opening a 529 account when your children are young could have a big payoff when it is time for them to attend college.

Crash Course In Credit Cards

It's essential that your children learn about the pitfalls of credit cards. However, don't discourage them from opening a credit card account. Building a solid credit history at an early age can pay off when it comes time to make a first home purchase or other major investment. Instead, young adults should be encouraged to build credit responsibly by using credit cards in place of cash if the cash is available to pay off the credit card bill in full each month. Discourage your children from using credit cards recklessly and from racking up debts that cannot be paid off in full. Make it clear that credit cards are not access to free money.

Set Realistic Spending Goals

If your children want the latest and greatest video game (or some other high ticket item), help them set a realistic goal of purchasing it on their own. You can create a budget and a realistic timeline for saving the money. Setting spending goals prepares your children for managing budgets as they enter college and beyond. Getting them on the right track early will help them later when budgeting for monthly utility bills, mortgage or rent payments, vehicle loans and other expenditures.

Take Advantage Of Everyday Learning Experiences

When opportunities arise to speak with your children about spending, saving or investing, take advantage of them. For example, if you are planning a family vacation, walk your children through how you plan to pay for the vacation. There are lessons to be learned around every corner and with every purchase or investment.


As parents, your ultimate goal is to prepare your children for success as adults. By teaching your children the fundamentals of finance, you will enable them to make wise decisions concerning their financial future and independence.

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