Do you want your kids to be able to manage money well? Here’s how to raise a financially responsible child!
My sister gave my 6-year-old daughter some coins and my daughter said gleefully, “Thanks for the free money! Mom makes us do chores to get money!” Ha!
Much to my oldest daughter’s chagrin, I am determined to start my kids out right by setting up their financial foundation when young so they’ll be well on their way to becoming financially responsible adults.
Unfortunately, you can’t count on school to give your kids a comprehensive lesson in money. In fact, financial classes are not even required in many districts.
Plus, you should absolutely start teaching your kids about money when they are very young and not wait until high school, since money habits are set by age 7.
I have 2 girls so I wanted to title this how to raise financially smart girls; however, I think it’s very important to make sure all kids learn to be wise with money.
Having said that, I do want to pass along a little phrase that I recently learned and found hilarious (and important):
A man is not a financial plan.
Seriously though, our job as parents is to make sure our kids grow up to be responsible adults. That means we also need to teach them to be financially responsible for themselves.
One of my goals is to make sure my 2 girls understand the importance of money and how to be responsible with it.
So, how can you teach your child financial responsibility?
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How to Raise a Financially Responsible Child
I think many parents want their kids to manage money better than they did, but they are not sure how or where to start (I’ve been there!).
Parents want their kids to:
- avoid serious debt
- take responsibility
- care for themselves and their families
- contribute in a meaningful way to society
- be financially independent
- make smart money decisions
- be able to purchase the things they need (and also some wants)
Here are some concrete things you can do to help raise financially responsible children:
Make Sure You Know the Basics About Money
You can’t teach what you don’t know.
But, even more so, your kids will learn SO much just by watching you live your life.
They will get an idea of your spending and saving habits, your attitude toward money and work, your beliefs about needs vs. wants.
Make sure you know the basics about money (staying out of debt, keeping a budget, savings, and investing). If you don’t know, take time to learn and teach yourself so you can pass this on to your kids.
This is one of my favorite books about finance for adults, easy to read and understand.
Talk About Money
You should talk casually about money with your kids like you would anything else.
The other day I was chatting with y 6-year-old about how I have to make choices about what to buy and that I need to focus on needs first and then wants. We had a great discussion about what actual needs are and she was able to name the very basic needs (yay!).
I talked about how I pay for needs first, then wants, and then we save for extra-special things (like trips to the museum, dance lessons, ice cream parties, etc).
When we’re shopping in the store, I will talk out loud about purchases and why I might choose a cheaper option (or not).
When I don’t want to buy something, I’ll say something like “I’d rather save my money for a special treat” instead of “We can’t afford that”, trying to frame things in this way: “I can decide what to do with my money and I am choosing not to buy this so that I can buy something else.”
Talk with your kids about things like:
- prices & price comparisons
- saving money
- needs vs. wants
- investing and compound interest
Help Them Understand the Connection Between Work and Money
I started a chore chart for my 2 girls (ages 4 and 6) a few months ago. My 6-year-old has been enthusiastically saving for a “big” purchase at the store (a Barbie, haha). She (most of the time) does her chores and energetically marks them off the chore chart and then will periodically count her money to see if she has enough.
My 4-year-old on the other hand is still not quite motivated. She doesn’t care much to do the chores (but definitely wants to buy things at the store). I’m not concerned because she’s still young and I know she listens to her older sister; plus, we’ll continue to have these conversations throughout their lives.
They are both learning the connection between work and money. I also talk about my job and how I make money to pay for things we need (housing, food) and also fun activites (dance lessons, etc.).
Help Them Explore Career Options
I think it’s great to talk about the myriad of ways that people make money. Tell them the jobs of each of your family members and their friends’ parents.
Help them explore career options. Also, teach them to think outside the box and not to shy away from being an entrepreneur. There are hundreds of stories of people starting businesses (even teens and kids too!)
Encourage Them to Save (or Teach Them to Wait)
Do you remember the old study about the kids and marshmallows? A researcher gave little kids 1 marshmallow and said that they could have that one now or they could have 2 marshmallows when the researcher returned after 15 minutes. They were observing the kids’ ability to delay gratification.
This is basically what saving is. Instead of spending all of your money now, you can save or invest it for the future. If you are impulsive or cannot delay gratification, then it will be very hard to wait patiently, save money, and reevaluate whether or not you actually need that item you are longing for.
Encourage your kids to save – particularly to save up money for a special item or experience. (You can use a savings chart like this one to keep them motivated!).
Related: Teach Kids to Save Money
Share Your Budget
You might not want to share actual numbers with your kids, but you definitely want to chat about budgeting.
My 6-year-old was surprised to learn that “turning on the lights” costs money, so we had a little chat about the things we have to pay for.
If you have a teen this is a great time to help them learn about budgeting and about all of the expenses that go into running a home. Make sure you talk about expenses and planning for all the things they need to pay for (rent, clothes, food, gas, entertainment, etc.)
Don’t Give Them Everything They Want
This simply defeats the purpose of teaching kids to manage money wisely. They won’t learn the benefits of delayed gratification, saving, and this could easily lead to entitlement.
Instead, show them how to budget, save up for large purchases, and make decisions about what to buy (and where and how).
Let Them Have Money to Use
In my opinion, this is one of the most important things you can do: Let your kids have their own money they can use (either through allowance or working). Nothing teaches financial responsibility better than actually having your own money to manage (with you, as a parent, to guide them!).
The other day my 6-year-old wanted to buy a game at the store, and I said “You can buy it with your money” and all of a sudden she didn’t want it anymore!
One day I took her to a store we don’t often visit and I pointed out the price of the Barbie at that store ($10 cheaper). We chatted about how she would save money if we bought it at that store and she found this fascinating!
I started the chore system with my girls (partly because, as a single mom, I really can use the extra help), but I also knew it would help foster a connection between work and pay. I decided to pay them for some chores and this has really motivated my 6-year-old to work and make money. Find out what motivates your kids and use it to help them learn valuable money lessons.
Final Thoughts on How to Raise a Financially Responsible Child
Help set your kids on a solid financial path by making sure that you follow these basic steps. Learn how to manage money yourself, talk with them frequently about money (and money matters), and let them use their own money regularly. I’d love to hear from you about how to raise a financially responsible child. What are your thoughts?