How can I teach my kids to save money?
According to a report by kids money education app Rooster Money, children between the ages of 4 and 14 received an average weekly allowance of about $9.35 in 2021. That’s about $486 per year, which isn’t a bad take for kids too young to join the workforce.
But the report had even better news: The average kid saves nearly half (48%) of their weekly allowance. Although kids don’t have the same financial obligations as their parents, that savings rate nevertheless bodes well for the next generation’s financial fitness.
If your kid isn’t among the many already socking cash away for a rainy day, you can take some commonsense, age-appropriate steps to raise their savings game.
Teaching Kids About Money in Elementary School and Earlier
These strategies are appropriate for very young children. You can do some, like talking openly about money around your kids, at a very early age. Others need to wait until kids are old enough to manage small sums of money on their own or use apps to mimic the experience.
1. Talk Openly About Money With and Around Your Kids
Time and again, you hear the same refrain: “It’s never too early to start discussing money with your kids.”
Take this logic one step further and resolve to speak openly about money with and around your kids from a young age. Feel free to discuss sensitive financial matters, such as salary negotiations and the status of your retirement accounts in the presence of your kids.
Talking about money around young children might feel awkward at first, but there’s no good reason to shoo them out of the room so the grown-ups can have a frank discussion. And if you’re worried about them sharing the details of these conversations far and wide, emphasize that financial specifics are fine to discuss in the house but aren’t appropriate to divulge to friends, teachers, or random people at the supermarket.
Young kids might not understand everything you discuss, but that’s OK. They don’t understand all the words in the stories you read with them either. That doesn’t stop you because you trust they’ll pick more up with repetition and age.
2. Lead by Example
You’re your kids’ most visible and vital role model. That may change during their rebellious adolescent years, but they’re all yours during elementary school.
By visibly following through on the fiscal wisdom you dole out to your kids, you show them it’s possible to live within your means. Kids are perceptive, and they often pick up on cues even when you don’t explicitly call them out. But your message will ring clearer and stick longer with some good-natured repetition.
So when you want to convey a money management concept to your child, explain why and how you’re doing it. And look for teachable moments wherever you go. Mundane activities, like shopping outings, are ripe for reinforcement. It takes just a few seconds to explain to your kid why you chose the cheaper generic option over the functionally equivalent name-brand option. Why pay a premium for a fancy label?
3. Give Them Fake Money
It’s not as cruel as it sounds. Fake money teaches young kids about the value of money without entrusting them with any hard-earned cash. Think of it as training wheels for budding consumers, with you (the parent) playing the dual role of banker and merchant.
Set reasonable values for various chores (cleaning up after a meal), privileges (stretching bedtime), and things they want (snacks)
4. Avoid an Open-Wallet Policy
Don’t give your kids an open line of credit. Instead, set constraints on spending money, even if you can afford to spoil them occasionally.
You’ve gotten used to telling your kids no on other matters. Putting your foot down on requests for cash or parent-aided purchases like video games and candy bars at the grocery store is no different. It’s essential to lay out this marker early in your kids’ financial education. The longer you wait, the harder old habits will die.
How hands-on you’d like to be is up to you. You can go so far as to set up a household “bank” — not a real bank account, but a pile of money you and your kids know the balance of. This way, your kids know exactly how much they can spend each week or month, and they won’t be surprised when they hear no. Over time, they’ll realize they have to save up for bigger purchases.
5. Be Equitable and Pay Kids Fairly for Age-Appropriate Chores
If you dole out an allowance to young children without requiring work, ensure it’s equitable on an age-weighted basis (you can give “raises” every year or quarter). If you pay wages for chores, assign equal amounts of work and an equal pay rate.
Sadly, the gender wage gap has come for kids too. According to data from BusyKid, a personal finance app for kids, girls receive less than half the weekly allowance given to boys, a starker divide than the gender pay gap for adults. That’s unfair and inconsistent with the principle that every kid deserves the same chance to succeed.
Eventually, extenuating circumstances might render equitable financial treatment impractical. For instance, you probably need to provide more support to a kid who gets into Princeton than one who enrolls in a technical certificate program at the local community college. But that’s likely years off. We’re talking about kids in elementary school here. There’s no reason not to start your little ones out on a level playing field.
6. Don’t Compensate for Tasks Kids Have to Do Anyway
A well-designed household chore schedule is a win-win. For parents, it’s a dumping ground for mundane, low-value tasks for which they lack the time or patience. For kids, it’s a buffet of practical earning opportunities and a long, low-stakes introduction to the sorts of rote tasks they’ll soon enough need to complete on their own.
Just resist the temptation to unduly relax your definition of “chore” to draw in tasks your kids have to do anyway, like cleaning their room or keeping play spaces clean. Even in elementary school, your kids’ chores should be (at minimum) jobs that benefit everyone in the household, such as washing all the dishes after a family meal, dusting the entire house rather than just the kids’ rooms, or cleaning and vacuuming floors throughout the home.
The goal is to only compensate kids for jobs you’d otherwise have to do yourself (or pay someone from outside the household to do). In effect, you’re hiring your kids to do these tasks and teaching them the value of a dollar in the process. Just be sure to pay them enough to encourage them to look forward to or at least not actively avoid these assignments.
7. Use Praise and Tough Love
Use a combination of praise and tough love to instill financial discipline in your brood. When your kid makes a deposit into your household bank or tucks a dollar bill away for a future purchase, tell them they’re doing the right thing. If you’re feeling exceptionally generous, throw in a low-cost treat, like an extra half-hour of screen time that evening.
You can also encourage your kids to make sound financial decisions by reminding them that by spending today, they’re deferring or forgoing future purchases they may value more. Don’t punish them for overspending. Just make it crystal-clear what they’re missing and remind them of that when they run out of money for something they really want.
8. Use Age-Appropriate Spending and Saving Cards With Parental-Control Apps
You use apps for everything else these days. Why not at-home financial education via your kid’s own debit card?
For example, Greenlight is a feature-rich reloadable prepaid debit card for kids. Parents have total supervision and control over it through its app. Features include instant loading, real-time notifications every time your kid uses the card, the ability to turn the card on and off instantly, and a change collection setting that lets kids save their change.
There’s also BusyKid. This reloadable prepaid debit card allows parents to monitor kids’ spending and saving via a powerful app. The app also allows kids to buy publicly traded stocks with their allowance or donate to their favorite charities, providing a peek at more advanced personal finance concepts.
9. Pay Them Interest
If you’re not ready to open a custodial or joint bank account for your child, find a way to pay them market-rate interest on the money they save.
It conveys to your kids that a penny saved truly is a penny earned, or perhaps two pennies earned, and that frugality pays off in the long run.
It also introduces very young kids to more complicated investing concepts, such as compound interest, and gets them ready for middle and high school math class in the process. Your kids won’t understand every step right away, but every bit of repetition helps.
Teaching Kids About Money in Middle School
These strategies are best for kids old enough to understand more complex financial concepts that are fundamental to financial literacy, like balancing a checkbook and managing debt.
10. Open a Custodial Bank Account for Them Early
Once you trust your kids enough to make their own spending and saving decisions without the aid of a piggy bank or closely supervised app like Greenlight, open a custodial bank account in their name.
There’s no real downside to setting up a bank account early, given that your joint account opens a whole new world of teachable concepts. But younger kids won’t participate as actively in account management and may not take interest at all.
Cross this item off your list by the time your kids hit tweendom, say, 10 or 11 years old, to give them plenty of time before high school (and hopefully their first job outside the home) to get up to speed on banking.
11. Get Them Excited About Money Management
Now’s the time to get your kids jazzed about something — anything — that involves sound financial decision-making.
For example, though checkbooks are obsolete today, some personal finance experts recommend ordering checks on joint accounts anyway. Balancing a checkbook helps demonstrate basic money management concepts.
If your family regularly donates to nonprofit organizations, get your kids involved in the process of selecting recipients and setting aside funds for quarterly or year-end giving. More likely than not, they’ll embrace the purpose-driven nature of the exercise. Nothing conveys the power of a dollar like seeing firsthand its potential to do good in the world.
12. Teach Children About the Importance of Avoiding High-Interest Debt
Many parents discourage kids from using credit cards altogether. That’s a perfectly valid approach to financial education, and one that keeps them away from one of the most common drivers of consumer debt altogether.
Even if you’re fine with your kids using credit cards when they’re old enough, have the “debt talk” with them before co-signing a credit card application or student loan, particularly warning them about the risks of carrying high-interest balances from month to month.
The debt talk isn’t just appropriate for budding credit card users. You can also use it to warn kids off uglier forms of debt too, such as predatory payday loans. It shouldn’t be a difficult sell, given the litany of consequences of bad credit: higher interest rates, higher car insurance rates, trouble renting an apartment or securing a cellphone contract, difficulty securing a job or obtaining a security clearance.
Anyway, sound credit management practices are sound money management practices. Every dollar your kids don’t have to pay toward a carried credit balance is a dollar they can sock away so it can earn interest in a savings account or grow in an investment account.
Teaching Kids About Money in High School and Beyond
Roll out these strategies as your money management cadets approach adulthood. Before they get their first job or head off to college (or both), they need to understand the basics of budgeting, taxes, borrowing, and investing.
13. Teach Them About Taxes and Accounting
Millions of kids work part-time in high school. Before they take their first tentative steps into the labor market, they need to understand the difference between gross pay and net pay. So it’s time they learn that earning money means paying taxes.
If you use a human accountant to prepare your household’s taxes, take your child to this year’s appointment. That way, kids learn that even parents must make financial tradeoffs and that not all the money you earn is yours.
If you prepare your taxes online, show your kid how the process works. If you or your kid don’t have time to complete the process in one sitting, just show them the ropes as you can. If you find yourself in the market for a new tax-prep portal, grab your kid and check out our list of the best free online tax-preparation software options along with our head-to-head-to-head comparison of the three most popular tax-prep products: TurboTax, H&R Block, and TaxAct.
If your family uses a certified financial adviser or financial planner, loop your kids in on your financial planning meetings too. Get them familiar with any online financial tools you use as well, including your brokerage or robo-advising suite. That goes back to the point about transparency and frankness. You want your kids to have the whole picture.
14. Involve Them in Grown-Up Money Decisions
As your kids get older, involve them in grown-up financial choices. You still have to make the final call, but listen to what they have to say to see if your money lessons have been sticking.
There’s no limit to the complexity or duration of these grown-up decisions. The long, multistep process of buying a house is a perfect opportunity to walk kids through a complex financial transaction that requires months of planning and preparation based on long-term goals. Along the way, you’ll have countless opportunities to illustrate specific financial concepts, like down payments and amortization.
Not every family with teens and tweens is eager to move. But buying a house is just one example. Buying your teen a car or comparing federal to private student loans are other potential opportunities.
15. Encourage Them to Apply for Scholarships
The cost of higher education is rising faster than the rate of inflation. According to U.S. News & World Report, the rate of increase in private university tuition outpaced the prevailing inflation rate by more than three times between 1996 and 2015. The rate of increase in in-state tuition at public universities outpaced inflation by more than six times during the same period.
The case for higher education scholarships has never been clearer. For parents and students, every scholarship is a win-win proposition, simultaneously defraying tuition costs and providing crucial budgetary breathing room.
Plus, students are young, and their earning power in the workplace is modest. It’s likely more cost-effective for the average student to apply for a scholarship or two rather than toil at a minimum-wage job (and take crucial time away from studying) to earn a comparable amount. A relatively modest ACT score increase, say, from 28 to 32, may net several thousand dollars in merit-based scholarships.
For example, if your kid studies 100 extra hours to raise their ACT score by 4 points and claim a $2,500 scholarship, they’ve effectively earned $25 per hour. That’s not a realistic wage expectation for most high schoolers unless they’re coding savants. Traditional service industry jobs rarely pay more than $15 per hour, even with tips. Besides, income taxes further erode wage earnings, but scholarships are tax-free.
I’ve seen the power of scholarships firsthand. I qualified for two academic scholarships in high school, collectively offsetting about $2,500 per year in tuition. That wasn’t much for my private college, but every little bit helped. And initially, I put most of my scholarship money into a CD, withdrawing funds as needed to cover tuition payments, books, and living expenses. I didn’t get rich on the interest, but it was a nice bonus and a worthy exercise in self-restraint to boot.
16. Open a Brokerage Account for Them
By the time your kids are in high school, they’re old enough to learn the basics of investing.
Broach the idea of investing their own money with them, making sure to explain the potential risks — that they could lose principal, for example. They should also know investing isn’t a short-term savings strategy. It could take years to see any real payoff, especially with the low amounts they’ll likely be investing.
If they’re interested, set up a custodial brokerage account with Acorns and have them set aside a modest amount of their own money to invest. Encourage them to research companies they’re interested in and read market and economic reports before putting any of their extra money to work.
If you’d prefer to explore investing strategies other than traditional stock-picking, nudge your kids toward index exchange-traded funds and mutual funds with low expense ratios and favorable ratings. It’s easier to build a diversified portfolio and convey the all-important concept of diversification with low-cost index funds anyway.
17. Help Them Budget and Apply for Student Loans
Applying for student loans and budgeting for post-graduation repayments are likely to be among your kids’ least favorite financial exercises, but they’re a piece of the financial education puzzle. Kids who aren’t prepared to set aside significant chunks of their take-home pay for student debt simply aren’t set up for frugal-living success.
18. Help Them Build Credit and Reinforce the Importance of a Good Credit Score
It’s never too early to begin building credit for your kids.
One easy way to help your teen build credit is to add them as an authorized user on your credit card. If and when they apply for private student loans, add yourself to the loans as a co-signer. The lender might require applicants with limited credit histories to have a co-signer anyway.
As you set them off on their credit-building journey, ensure your kids understand why it’s crucial to build and maintain good credit in the first place.
Help them understand the real-world consequences of bad credit, like higher insurance premiums and problems finding quality rental housing, surely a top-of-mind concern for kids looking ahead to independent living.
Show them how to check their credit score with consumer credit-reporting bureaus or consumer finance platforms like Credit Karma. Make sure they know they’re entitled to one free credit report per year from each bureau. And give them tips to improve their scores over time, like maintaining low credit balances and using free score boosters like Experian Boost.
19. Teach Them the Three Types of Personal Savings
Before they leave the nest, ensure your kids understand the three primary types of savings: personal savings, emergency funds, and retirement savings. Give them an overview of each type — what it’s for, when to contribute, why it matters to their savings goals, and when to draw upon it.
20. Encourage Them to Open a Student Credit Card Account
When your kids are old enough, encourage them to open a student credit card account.
Responsible credit card use is actually an effective savings strategy. When you pay your balance off in full each month, you avoid costly interest charges that eat away at your budget and stunt the growth of your personal savings.
But that’s not the only reason you should nudge your young ones to apply for a credit card once they’ve reached the right age. Many entry-level student credit cards earn cash-back rewards on spending, usually 1% to 1.25% on every dollar spent, and sometimes more on spending in select purchase categories.
Some credit cards promise extra rewards for diligent students. One popular option, the Discover It for Students card, pays a $20 bonus every year you keep your grade point average (GPA) above 3.0. That gives a whole new meaning to the concept of teaching kids about money.
Encourage your kids to save their earned credit card rewards. That simple exercise can add up fast. If your college-age child charges $5,000 per year to a Discover It for Students card account that earns an average of 1.5% cash back and maintains a 3.5 GPA, they come away with an extra $95 per year. For the typical ramen-chomping student, that’s a pretty good haul.
If you’re not sure which student credit card is right for your youngster, check out (or ask your kid to check out) our regularly updated list of the best student credit cards on the market today.
Kids are like snowflakes. They’re all different. So are parents.
As a parent, you have wide latitude to teach your kids the value of money and instill sensible money habits.
However you choose to teach your kids financial lessons, never forget that it’s in your financial interest to ensure that they know how to manage and grow their own money in the real world for years to come. After all, you might rely on your kids’ thrifty habits to support you long after you hang up your hat for good.