A wise person once told me that values and traits are mostly caught not taught. Does that mean that we shouldn’t teach children about money? No! However, it does mean that we should practice good money behaviors and reinforce those behaviors through financial literacy. In layman’s terms, that means that along with teaching someone how, it is just as important for them to understand why. 

Financial literacy for kids is the knowledge, skills and motivation that will best prepare children to achieve their personal financial and life goals. So where do we start? When dealing with financial literacy for kids, you need to start with the basics.

1.  There are only three things you can do with money.

(a) You can spend it
(b) You can save it
(c) You can give it away

2. Income (minus) expenses better equal a positive number. 

I have joked that if you can add and subtract, then you can make a successful budget. Most kids learn addition and subtraction in school, but most are not taught on how to make a budget.  A great way to help kids learn about budgeting is through practice.  For example, if your child receives money from birthday gifts, holidays or perhaps a part-time job or allowance, teach them to pay themselves first by putting a certain amount into savings (an account in their name). Then teach them the importance of giving by having them donate a portion of their funds to a charity of their choosing. Lastly, allow them to spend the rest.  Reinforcing these money habits when they’re young can help them continue applying the lessons learned when they are older and independent.

3.  Distinguish between true needs and wants.  

Everyone needs food, clothing, shelter and transportation. But while food is a need, eating out every night is a want. Clothes are a need, but the latest designer clothing is a want. That doesn’t mean that you can never go out to eat or purchase a pair of designer jeans, and a great way to teach your children the difference between needs and wants is through back-to-school shopping.  

If you have older kids, consider letting them do their own shopping. Drop them off at the mall with a universal gift card preloaded with their budget and a list of items that they need.  Let them make the difficult decisions when it comes to limited resources and unlimited options. Your child will either impress you with their ability to stretch a dollar, or you will have to make some exchanges. Either way, it’s a learning experience. 

If your kids are on the younger side, you have the final say in what they will purchase, but give them choices: gently worn instead of new, one expensive item instead of two affordable ones, tops from the fashion stores but generic bottoms.  

4. Stay on the correct side of compound interest.


You don’t need to be a rocket scientist to figure out that you will be better off earning interest on your own money instead of paying interest to someone else.  

(a) Earning interest on your own money

It’s not what you know but what you do that matters most. While it is not a hard concept to grasp that earning interest on your own money is better, you can put that knowledge into practice by opening a children’s savings account. I would encourage you to search “bank account for kids” as that is where you will find the top children’s savings accounts. Always read the fine print about fees and minimums before opening an account. Once the account is open and funded, review the monthly statements with your child and show them how the interest grows over time.

(b) Paying interest to someone else

While you should teach your child there is no such thing as good debt, you should emphasize the many uses of credit. Credit is a tool that, if used responsibly, can help you put a roof over your head, provide transportation, or possibly fund higher education, such as college or trade school—both of which could lead to higher income potential.  

Most people learn the dangers of debt the hard way, but it doesn’t have to be that way for your child. Explain to your kids that credit is not their money. It is a loan they must pay back, with interest and the longer it takes for them to pay it back, the more it will cost them.  If your child understands all of that, they can avoid becoming another statistic.

5.  The importance of giving and volunteering.

You are probably wondering what charitable giving and volunteer work have to do with financial literacy. Money in and of itself is very easy; it’s the behaviors and emotions involved with money that get many people into trouble. This is why it’s important to teach your kids the value of giving and volunteering. Growing up most of us have heard repeatedly that it is better to give than to receive, and there is logic behind that. The positive feelings you experience when you give last much longer than the temporary euphoric feeling you get when you spend money on yourself. Teaching your kids to give and to volunteer helps develop discipline and empathy toward others that will help them stay focused on what is truly important. which can have a profound impact on their finances as well as every other aspect of their lives. 

If you have questions or would like to learn more ways to improve your kids’ financial literacy, contact a CFP® professional in your area today.