The Ultimate Guide to Financial Literacy for Kids
You might worry that your kids are too young to start thinking about budgets and savings accounts, but teaching financial literacy at an early age sets them up for a more positive relationship with money. Children who learn financial skills will be better positioned to avoid debt, build credit, and achieve financial stability when they are older.
Your kids watch you spend money; they might even have some of their own, but that doesn’t mean they understand. Financial literacy, or knowledge of money management, is key to establishing healthy behaviors. When combined with financial competency, where they experience the real-life challenges and consequences of money management, it provides a well-rounded financial education.
To prepare you for productive conversations about finances with your family, we’ll explore everything you need to know about good money habits and resources that can help you explain them. We’ll also examine the importance of financial literacy to your children’s lifelong happiness and success.
Teaching Financial Literacy to Young Children
Money is a common source of anxiety for families, with 70% of Americans reporting feeling stressed about their personal finances. Some parents try to protect their children by leaving them out of financial discussions, but it often has the opposite effect. Talking to kids about money helps rather than harms them.
Starting at an Early Age
Although it may not seem like it, young children observe and absorb what you do and say. That’s why it’s so critical to introduce financial literacy for kids before they can develop bad habits or unrealistic perceptions of money.
The Significance of Introducing Financial Concepts at a Young Age
Parents often focus on teaching their young children empathy, kindness, and fairness because they know those values will be important for the rest of their lives. The same is true of financial literacy. What you teach your children today will affect their financial futures for decades to come.
That sounds like a lot of pressure, but it’s actually a great incentive. Just as you want your children to treat people well when they grow up, you also want them to take care of themselves and handle their money responsibly. That means teaching them to save money, pay for some of their own purchases, and know that it’s safe and healthy to talk about financial concerns.
Age-appropriate activities and Resources for Teaching Financial Literacy
Between school, family time, sports, and activities, finding ways to teach your kids about financial responsibility might seem like too much. Fortunately, there’s a wide range of resources available to make it easier, including:
- Board games: Family financial literacy games like Payday and Monopoly teach people how to count and track their income and expenses. They also help teach children about financial risks and consequences.
- Online games: Make good use of screen time with financial literacy games for kids. Games like Peter Pig’s Money Counter use cute characters and bright colors to keep children engaged and interested as they learn.
- Books: Include financial literacy books in your daily reading sessions. For instance, the Moneybunnies series teaches about saving, donating, and earning money.
Knowing that you don’t have to create a lesson plan for financial literacy from scratch makes it easier to commit to educating your children about finances.
Incorporating Financial Education into Daily Routines and Conversations
Every discussion about money doesn’t need to be a major production or a serious talk around the dinner table. There are plenty of opportunities to include financial lessons in your everyday activities.
For example, before you make your weekly run to the grocery store, sit down with your children and work together to write a list of items to buy. Discuss the differences between needs and wants and how to balance them.
With your list in hand, go to the store together. Ask your little helpers to compare prices and keep track of your spending so that you stay within your budget. Putting them in charge of this financial goal makes them feel included and responsible for one aspect of your family’s finances.
Money Basics and Money Management
Overwhelming kids with information about different types of savings accounts, loans, and interest rates can make them quickly lose interest in financial literacy. Start with the most essential elements of money management, knowing that you can build on those principles as your child gets older.
Understanding the Value of Money and Its Various Forms
The concept of financial literacy can seem abstract, especially if it’s not something you regularly discuss. Put it into more practical terms by looking at the various forms of money that your family uses, including:
- Coins: Coins are an excellent way for young kids to learn financial management. Teach your children the values of the different coins, how to count them, and how they compare to the value of paper money.
- Paper currency: As with coins, talk to your children about the different values of paper bills. Role-play different scenarios at home and explain how sales tax can affect the price of something they want to buy.
- Digital money: Explain that sometimes we have money we don’t see or touch. Show how a kids’ debit card allows them to take money from a bank account when they don't have cash.
- Credit cards: Be clear that the limit on a credit card is not the same as a bank balance. Describe how credit cards are actually loans that people have to pay back rather than free money.
This information is fundamental to your children’s understanding of all the other financial literacy topics you’ll eventually cover.
Introducing the Concept of Earning, Saving, and Spending
Knowing where money comes from is one of the most vital components of financial literacy. Otherwise, children get the impression that it magically appears and never stops flowing. That’s one of the reasons why giving kids an allowance is so problematic.
Focus on teaching your children that they don’t get money just because. Instead, they have to earn it through work or chores. Put it into perspective by explaining that adults must also work to pay bills, buy food, and go on trips.
Beyond earning money, kids should also understand that if they spend every dollar as soon as they get it, they won’t have enough left to make purchases later. Encourage them to save at least a portion of their money and make careful decisions about how they want to spend the rest.
Teaching Budgeting Skills and Wise Financial Decision-Making
Creating a budget is more than just knowing how much money you have and how much something costs. It also requires considering future expenses, spending priorities, and savings.
Teaching your child to think in these terms gives them a deeper understanding of the value of money and how easy it is to overspend. Don’t be surprised when your child makes a mistake or two; resist the urge to rush in and save them. Buyer’s remorse teaches an important lesson and makes them more mindful of their spending.
Establishing Good Money Habits
With stores overflowing with toys and never-ending ads for trending products, kids need to know how to make good choices and spend their money wisely. Good eating habits teach your children to nourish their bodies, and good financial habits help them become healthy financially.
Encouraging Saving from an Early Age
Saving money is tough for kids, who tend to get excited about having money to spend and want instant gratification. But putting money aside rather than spending it right away is one of the most important financial habits anyone can have.
For young children, saving a few dollars each month might be enough to demonstrate how money can accumulate. Teens can work toward building bigger savings accounts, using their earnings from part-time jobs or birthday gifts for expensive items.
Introducing the Idea of Setting Financial Goals
Having a clear goal helps you focus and motivates you to spend thoughtfully. For adults, that might mean building up a down payment for a new home or setting aside an emergency fund. The stakes will obviously be much lower for kids, but having a goal is equally beneficial.
When your child sees an ad for a new toy or hears about a fantastic gadget from their friends, explain that they can set the purchase of that item as a goal they want to work toward. Write down the cost and describe how much they’ll need to save to get it. Think realistically about how long it will take them to reach that point and encourage them to stay on track when considering spending their savings elsewhere.
The Role of Parents in Cultivating Responsible Money Habits
A 2021 survey from OnePoll and Chase found that 59% of parents feel uncomfortable talking about their money and finances with their children. Moving past that discomfort helps secure your child’s financial future. Although some schools teach money management skills, parents are the first and primary source of financial literacy.
Resources and Tools for Teaching Financial Literacy to Kids
A 2023 survey found that 55% of respondents from Generation Z came from families that talked about money, compared to only 41% of Baby Boomers. As the number of families teaching kids financial literacy grows, experts have created various resources to help them.
Financial Institutions and Organizations
You don’t have to be a financial guru to help your children learn about money management. Banks, nonprofits, and other financial institutions can help explain some of the most complex issues in a way children can understand. Look for resources from organizations such as:
- Junior Achievement: Junior Achievement is a nonprofit organization that offers lessons focusing on different topics, such as entrepreneurship and personal finance planning, for elementary through high school students.
- GreenPath: As a financial counseling service, GreenPath provides webinars and guides for parents and educators who want to teach financial management skills.
- Local credit unions: Credit unions in your area may also offer special programs for financial literacy for children and adults.
Teaching kids about money also doesn’t have to be expensive. Many of these resources are free, making financial literacy accessible to families in every income bracket.
Age-Appropriate Money Conversation and Activities
You’ll take a different approach to financial literacy for kids depending on their ages and comprehension levels. Consider using these ideas with your family:
- Reach out to your child’s school about possible financial literacy programs that they could offer.
- Take advantage of school or activity fundraisers to go over financial concepts such as goals and budgets.
- Use financial literacy games and interactive apps based on age, such as investing games for kids in high school and simpler saving and spending games for younger children.
- As your child gets older, sit down and review your paycheck, explaining topics such as taxes, gross and net pay, and deductions for health insurance.
No matter your child’s age, be open to questions about money issues and concerns.
Parental Involvement and Support
When you get a paycheck, you know the money is to compensate you for all the tasks you completed during the last pay period. An allowance doesn’t send that same message, especially if children receive it regardless of whether they’ve done chores or work around the house. This makes it difficult for them to understand the value of the money they’re receiving and encourages them to spend it on whatever they want, whenever they want.
In addition to giving your children direct instruction about how to earn, spend, and save, it’s also crucial to model good behavior through moments such as:
- Letting your family know why you’re not buying certain things even though you want them
- Showing them your savings account and encouraging them to use their own, whether through a kids’ bank account or piggy bank
- Explaining why you can’t just use credit cards every time you want to buy something
Don’t be afraid to acknowledge your missteps along the way. If you regret a purchase or go over budget on your grocery bill, explain to your children what went wrong and what you would do differently next time.
Advantages and Long-Term Impact of Early Financial Literacy Education
Financial education has immediate and lasting impacts on a child’s financial health. Understanding them clarifies why every family should spend time discussing financial literacy.
Financial Wellness and Independence in Young Adults
The transition to adulthood is exciting when young people explore new opportunities, assert their individuality, and take control of their life decisions. Unfortunately, it can also be a dangerous time for young adults who didn’t learn about money as children.
Enhanced Financial Decision-Making Skills
Making major purchases on a whim or overdrawing an account may not seem like a big deal to a young adult who never learned about the real-world effects of those decisions. Financial literacy gives them a clearer picture of why their financial decisions matter, and they carry that knowledge throughout their lives.
Educating your kids about money will help them avoid disasters in the future, including overspending on credit cards and wasting their savings on unnecessary items. They’ll have the information to decide how and when to spend their funds.
Building a Solid Foundation for Personal Finance Management
Most young adults don’t have huge savings accounts or massive investment portfolios, but that doesn’t mean they can’t start working toward those accomplishments. With a solid background in financial literacy, they can take important first steps, such as saving money in an interest-bearing account or allocating a certain percentage of their earnings to a retirement fund.
Avoiding Common Financial Pitfalls and Debt
American households have a total of $1.03 trillion in credit card debt, an astounding number that underscores the dangers of poor money management. Relying on high-interest credit cards and personal loans to fund purchases can put you in a precarious position.
The skills that children develop when they learn financial literacy help them steer clear of these types of issues. They’ll be less likely to spend blindly and live on borrowed money.
Building a Savings Culture
Money-saving apps help kids save, but you’ll need to do more to make them understand why saving is so significant. Financial literacy is a way to create a culture of saving rather than spending.
Instilling a Lifelong Habit of Saving Money
It’s never too early to start teaching your child to save money and create savings goals. You can start on the day they’re born by setting up an account or piggy bank and adding monetary gifts for Christmas or birthdays.
When your child is ready, explain to them where that money came from and show them how to keep adding to it. Make a record of their savings so they can see the balance grow over time.
Understanding the Benefits of Compound Interest and Long-Term Savings
Older children who understand the basics of saving can move on to more complicated subjects, such as compound interest and long-term savings. Explain how some savings accounts allow them to make interest on the original balance and the accumulated interest they earn. Look at a line or bar graph to see how it accelerates their financial growth.
Achieving Financial Goals and Future Financial Security
Buying a home, saving for retirement, and living debt-free are just a few of the goals that people can reach when they have a clear understanding of financial management. Reaching them isn’t always easy, but you can increase your children’s chances of having a solid financial future by preparing them to save and budget.
Empowerment and Long-Term Financial Success
As a parent, your goal is to prepare your child for their future so they can face the world independently. Financial literacy is a core element of making that happen.
Increased Confidence in Handling Money Matters
Children who don’t learn about money often feel insecure about managing financial decisions when they reach adulthood. They miss out on financial opportunities because they aren’t aware of them and get drawn into risky investments because they don’t know how to spot them. Providing a comprehensive education in financial matters makes them feel comfortable saying no and negotiating better terms.
Improved Understanding of Personal Financial Concepts and Products
Countless financial opportunities are available in today’s market, each promising a different way to increase personal wealth. Adults with financial competence will better grasp which products are best. They’ll also know how to weed out products that endanger their financial standing.
Nurturing a Generation of Financially Responsible Individuals
When people know how to manage money properly, it benefits more than just their futures. It also helps build a more productive, financially successful future for everyone. Financially literate adults rely less on loans and credit cards and contribute more to savings accounts. This, in turn, reduces the strain on social systems and community services designed for our society's most vulnerable members.
Give Your Kids the Power of Financial Literacy
Financial literacy is a gift your children will never get tired of, break, or throw away. It will serve them long after growing up and beginning their own families. When you prioritize money management skills, including saving and budgeting, your children will know how to handle their money and make smarter decisions.
GravyStack is a gamified banking platform that makes financial literacy fun for kids and teenagers. It includes a bank account and debit card for kids to learn how to earn money, make purchases, and grow their savings. Sign up today to set your children on the path to a better financial future.