3 Core concepts for teaching kids about money

More than half of American’s surveyed (58%) said that they were concerned about how much they had in savings.  The good news is, by teaching kids about money, parents can help them avoid facing this same concern in adulthood. 

When thinking about how to teach kids about money, there are three core concepts: 

  1. Effective earning 
  2. Effective spending 
  3. Effective saving 

 

Effective Earning: Learning to earn 

Your child’s first step toward money mastery is learning the value of generating money. Take some time to teach your children about the value of cash flow, which comes from a solid work ethic. That’s why parents have to set good examples in their work and in earning money for their children to model. 

Tip 

  • Demonstrate that hard work brings positive rewards by giving your children jobs around the house to earn their allowance. 

Effective Spending: Good spending habits 

This is another core concept surrounding kids and money. The first step is making sure your child realizes that when money’s gone, it’s gone. You can teach even young children to create a budget to guide their spending. You can also teach them how to use credit wisely. 

As an adult, your credit is important to your livelihood. If you don't manage your credit as a young adult, you won’t be able to purchase big items like a home or car when it’s time. 

Tips 

  • Help your child create a budget for purchases based on earnings. 
  • If the budget is all spent, resist the urge to step in for the rescue. 

Effective Saving: Building up savings 

Teaching kids about money includes reinforcing the differences between a savings account and a checking account; a savings account is not a fund that should be dipped into when heading to the mall or the movies. Children learn this principle easily when they see their parents’ savings accounts grow through regular deposits and few, if any, withdrawals.  

The main difference between checking and savings accounts is that checking accounts are primarily for accessing your money for daily use while savings accounts are primarily for saving money. Checking accounts are considered “transactional,” meaning that they allow you to access your money when and where you need it. 

Tip 

  • Open a savings account for your child at your credit union. Look at Cobalt’s Dollar Dog Kids Club savings account, which uses rewards to teach kids about saving. Determine how much will be deposited each week and encourage your child to stick to it. 

 

 When saving it is also important to teach the two types of rates. Rates on savings accounts can work for you while rates on credit accounts can work against you. Children need to understand both types of rates and how they can help or hurt when saving. 

Savings and investment account dividends 
  • Kids can start learning about dividends by opening a dividend-yielding savings account. 
  • This is also an opportunity to teach them about other dividend-yielding investments like certificates. 
  • Children will enjoy seeing how their money makes money for them. 

 

Credit or loan account interest 
  • Teach kids that credit interest is money you pay above what you borrowed. 
  • Show older children and teens how making minimum payments on a high credit balance could keep them in debt for many years. 
  • Be a good example to your kids by paying off your credit balance each month. 

 

When you follow these, and other common-sense tips related to teaching kids about money your child’s financial future will be much more stable.  

For even more information on how to teach kids about money, see our other posts about kids and money.