Most people receive little to no guidance on how to save or manage money. Schools typically don’t teach money management, and most parents don’t teach it to their children because their parents didn’t teach them.
This partly explains why more than 60 percent of Americans lived paycheck to paycheck — and that includes people who earned more than $100,000 per year
We can give our children a huge head-start in life by teaching them where money comes from and how to save and grow money — and then guiding them as they actually do it. A 2022 study found that it’s not enough just to talk about saving money or even to model good money-management behaviors. We need to let our children experience what it’s like to save money.
The study found that the most effective actions parents can take is to allow their children to oversee their own money and practice making financial decisions. Children who learn from experience are more likely to be confident in making financial decisions in young adulthood.
The following are some tips for giving your children that hands-on experience in saving money at different ages.
You can start teaching children about money as early as age 3. Teach them where money comes from so they can begin to understand its value.
That teaching needs to be concrete and visual. A professor of psychology at Stanford University suggests giving children in this age range a small, regular allowance and then asking them what they want to do with the money. Simply giving them money with no instruction teaches them that you’re going to hand them money for nothing.
To make the instruction visual, the professor suggests that you have your children put money in a piggybank. To make the lesson more visual, use a clear jar instead of a piggybank. Draw a horizontal line across the jar, and tell your child that he or she can go buy something once the money in the jar reaches that line. This exercise will help them see that they can use money to get what they want. Reinforcing this hands-on learning can help build a foundation for more serious saving later on.
One of the biggest challenges with teaching younger children about money is that they don’t typically understand the concept of “delayed gratification.” If they have money, they want to spend it. It takes repeated instruction and hands-on-learning to help them cultivate the habit of saving money to use later.
By the time children reach the age of 7, they’re probably ready to learn about the concept of saving for different purposes. This is an important concept we teach our clients — to use some of their income for daily living expenses, to save some for the future, to build up an emergency fund to cover unforeseen expenses and to give to charity.
Consider setting up a savings account for your kids at your bank. Children younger than 18 cannot legally open a bank account in their own names. It also might be time to get your child a kid-friendly debit card. These cards have an element of parental control. You can receive alerts when your child makes transactions, and you can block certain spending categories.
Also teach your children in this age range about wants vs. needs, and introduce to them the concept of budgeting. If you give them an allowance, show them how they have to prioritize what they will spend their money on because they can’t afford everything they want. If they have their sights on big-ticket items, help them set aside a certain amount of money each week or month and save for the item.
Ages 13 and Above
Once your children are teenagers, and you’ve guided them through years of hands-on lessons on earning, managing and saving money, it’s likely that they will feel motivated to earn money on their own. Encourage them to start babysitting, walking dogs, mowing lawns and doing other work for neighbors and family members.
You can amp up their enthusiasm about earning their own money by matching what they bring in. You can match any amount they put into a savings account dollar-for-dollar, for example, or match 50 cents for each dollar they save. If you haven’t already gotten your child a savings account at your bank, now is a good time. Having them deposit the money they earned into the account, and then seeing the money you add to it, will let them see how their money is adding up.
This is a great time to teach them about compound interest, too. Show them how their money “grows” over time. Reinforce those earlier lessons about spending some money now, saving some for the future and giving some money to a good cause.
Also, consider letting your teenagers offer their opinions about your family’s charitable contributions.
Finally, talk with your children about their plans after high school. If they want to go to college, talk with them about options. Explain that in-state schools typically charge less than out-of-state schools. Establish parameters for how much, if any, you expect them to contribute toward their own college education.
Allow Your Kids to Make Mistakes
Here is a final tip for you as you teach your children the value of money and how to manage it.
Of course you want to protect your children from the fallout of bad decisions in life. However, like most other areas of life, it’s best to let them make mistakes as they learn how to manage their money. They will learn more from their mistakes than they will from doing everything right.
If you see your children headed for a bad spending decision, discuss with them why you don’t think it’s a wise choice. If they’re still determined to go through with it, let them — within reason, of course. It won’t be pleasant for anyone, but it will teach them valuable lessons about how it feels to waste money they’ve spent their time and effort to save. Once they’ve experienced the negative effects of bad decisions, they will probably make better decisions moving forward.
As you teach your children about saving money at every age, there are three keys to making the most of your efforts: be consistent, focus on actions and have continuous conversations. Your consistent focus on good money management, and your constant guidance and openness to discussing financial topics, will go a long way toward giving your children a strong foundation for financial success once they become adults.
Any opinions are those of the author and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or a loss regardless of strategy selected. No investment strategy can guarantee your objectives will be met. Past performance is no guarantee of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.