A Parent’s Guide to Building Financial Literacy for Kids

We love our kids and want the best for them. That is something every parent can
agree on. But to really give your kids a leg up before they enter the real world,
you’re going to need to teach them some real-world money skills – which will in
turn help in building financial literacy skills. We’ve pulled some of the best advice
out there and compiled it into this Parent’s Guide to Building Financial Literacy
for Kids.

Tips on Raising Financially Literate Kids

Start Early

Recent studies “show that only 24% of Millennials demonstrate basic financial
literacy skills.” As we say, you can start having financial conversations as early
as toddlerhood – when kids become aware of the significance of money in
“getting” the things they want (ie toys).

While your conversations about money and finances are going to be very
different for a 5 year old than they are for a 10 year old and even a 15 or 18 year
old, there are important concepts to be learned at each of these ages.
In fact, the important factor in getting the concepts to stick – especially at the
younger ages – is to gamify the experience of money and nance. Kids of all
ages love games, so try to make it fun for them. They’ll be more likely to want to
participate.

Teach Kids to Delay Gratification

One of the hardest things for a young child to do is delay instant gratification.
Their little minds just “want it now,” or they might explode. “But Mooooommmm, I NEED that [insert name of toy they love].” This is all too familiar in many a
household.

Teaching kids to delay gratification, though, will ultimately empower them to
take control of their finances – and many other things in life – and it can be done,
so never fear.

You can easily start teaching this concept by making your child make a choice
between something he or she wants right now – and an alternate (but better)
option if they delay gratification. Here are a couple of examples:

When you build out your child’s allowance plan, allow for some interest to be made. Then, when your dearest child comes asking to use some of their hard-earned money toward a toy, show them their allowance chart and interest plan, and illustrate that if they actually held onto that money rather than spent it, they’d have
even more money… and help them decide whether they’d instead like to delay their gratification by waiting for their financial account to grow before buying that toy.

This is a smaller type of lesson, but it can be valuable nonetheless. If, say, your kid wants candy and hates vegetables, you can do the following: My youngest always comes home and asks for a piece of candy. He knows I hate this, because I truly would prefer he ask for a fruit or veggie.

But I’m also a realist. So, instead of giving into his sweet tooth, I make him a deal: “Little One, if you can eat all your veggies at dinner tonight, I’ll let you have that piece of candy.” Or, “My Love, if you eat a piece of fruit right now, then of course you may have one small piece of candy afterward.”

It’s basically bribery, but in the end, it works.

Show Them How to Spend and Save Responsibly

When given a choice, most children will choose to spend rather than save 100%
of the time. So teaching your kids to save is something you’ll have to readily
participate in.

One great way to teach kids to save is to help them learn to budget early on. You
may want to refer to our guide on Teaching Kids to Build a Budget – because teaching kids good spending and saving habits is really a bedrock of helping
them to become financially literate.

Two important aspects to note are to a) keep your kids active in the process, and
b) make it fun for them. If you can successfully make these two things happen,
you and your kids are going to have a leg up in this process.

Help them Choose Fruitful Careers

While we should never choose our kids’ careers for them, we should have open
minds, and help guide our kids toward careers that we know they’ll thrive in. Even
from a young age, we as parents have an idea of who our kids are.

We know their
interests – and while they’ll certainly change to some extent throughout their
lives, we can help them navigate their interests and introduce them to enough
career choices where they can understand their potential and make a positive
decision as they become adults.

Whether you get them into camps, or introduce them to people you know in
various professions, networking comes in many forms, and will help you help
your child.

Instill a Deep Knowledge of Credit and Borrowing

Credit is one of those intangible things that is hard for people to understand. And with three credit bureaus populating three different credit scores based on
varying factors, it’s hard to know with certainty what to do to build good credit –
especially when you’re young.

Check out our article on building good credit, but in a nutshell, you want to make
sure your child can build an income, and can start to put their name on a secured
credit card or a loan – something that starts to build their credit from a young
age.

Teach them to use credit cards responsibly; to pay their bills on time; and your
child will be better off than most.

Future Planning

It’s so important to start thinking about investing and putting money away for
retirement, or even a rainy day. And the younger we start, the better. So you can
help your kids get a leg up by enforcing a level of saving and investing as soon
as your child gets their first job.

In The End

In the end, life isn’t all about money. It never is. But, as my parents used to say,
we do need money to do or have the things we want in life. And I also say that
money does, to a certain extent, buy you time and freedom. I hope this guide
helps you begin to address finances and financial literacy with your children.