Morgan Stanley
  • Wealth Management
  • Mar 14, 2018

How to Teach Your Kids About Money

It’s a long process and best to start young. See if any of these tips would work for your family.

Anyone who has experience with kids knows that teaching important life skills -- like how to deal with money -- is a matter of starting with simple concepts when they are young and then building on that knowledge through the years.

My kids are almost grown and I’ve learned that with financial matters, it’s important to not just talk to them about money, but to create the conditions that allow them to gradually gain experience and know-how through the years.

Since this is a broad topic that fills books, I thought it would be most helpful to share some specific ideas by age group. See if any of the ideas below would work for your family.

Toddlers Through Kindergarten

Even very young children can learn how money works and grasp concepts around spending, saving for a goal or giving money away to help people in need.

When you go shopping, talk to them about why you chose one brand over another and discuss the price. It will help them start to learn how sometimes you pay more for something that offers extra value or less for an item that is on sale. 

I think it’s appropriate to give young children small amounts of money for their birthdays or holidays. You can introduce the idea of saving to buy an item you really want. They may have fun adding coins to a piggy bank or dollar bills to a wallet. An added benefit: giving them some cash can be a fun way to teach them some simple math skills.

Grade School

When children enter school, that’s when they can learn more about how the broader financial system works. They should have some money of their own. Open a basic savings account and include them in the process.

Consider establishing an allowance, ideally tied to your child helping with chores (although that is admittedly a hard goal for many parents to maintain). Help them decide what amount of that allowance they want to spend, save or give to charity.

Let them gradually learn to make their own spending decisions—like buying gifts for siblings or choosing a back-to-school outfit. Ideally they will make some mistakes and learn not to waste money on things they don’t need.

They can also start to learn about how businesses operate as a precursor to learning more about investing. Games can be a great tool.  Monopoly, anyone?

High School

By high school, your child is ready to start learning, not just how to spend and save, but how to start to build wealth and manage debt.

They should start earning money outside the home, whether that’s babysitting, helping a neighbor with chores or getting a weekend job. You can expand their bank account to include a checking account, with debit card. Look for accounts that have mobile check deposit features and electronic person-to-person payments, which can come in handy if you need to get them money in a hurry.

These are great years to teach your children about the importance of investing for the long-term, even if they aren’t ready for their own investment account. Get them to think about setting goals and buying things that may appreciate in value over time—like stocks—as opposed to items that quickly depreciate, like electronics.  

Involve them in discussions about your own retirement savings, investing and—especially—planning for college costs. If you are unlikely to be able to pay the full $65,000 a year that attending a private college can cost, let your child know that early in their high school years. This may ultimately be their first lesson in debt. It may be a difficult discussion, but the earlier you set expectations, the better for the whole family.

Gradually give them more control over how they spend their money as college approaches. If they don’t have a job that covers their daily expenses (most high schoolers don’t these days), avoid handing out twenties every time they want to go to the movies. Increase their allowance and work with them on a budget that covers reasonable expenses for transportation, entertainment and clothing. Make sure they know you aren’t a bottomless pit for funds.

Finally, make sure saving for the future—and investing toward long-term goals— is part of their plan.

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