Personal Finance

Teaching Children About Money

January 7, 2020
Use these concepts to help your children develop into educated savers and spenders.

Key Points

  • It’s important to give children the tools they will need to save and spend money wisely throughout their lives.
  • Start with budget basics and work up to more complex topics, such as investing.
  • Model (and discuss) the type of financial behavior you want your children to develop.

You can give your children the gift of financial literacy by introducing them to basic concepts at a young age. “Most children are ready to learn earlier than you may think,” says Judith Ward, CFP®, a senior financial planner with T. Rowe Price. “You can help them develop healthy financial habits by giving them the tools they need to be successful.” Here are a few age-appropriate concepts to consider.

GRADES 2–5

Sensible spending
Once children reach second grade, they’re ready to learn budget basics. For instance, the money your family earns must first cover necessary expenses such as food, housing, and clothing.

Money management
This is also a good time to start teaching children the value of money using any allowance or cash they’ve received as gifts. According to our recent survey, 52% of parents offer their children the opportunity to earn an allowance of around $10 per week.* “It’s important to help children find the right balance between having things today and saving toward what they may want later,” says Ward.

A penny earned
As your children get older, they may decide they want to earn extra money to supplement their allowance by completing jobs beyond their regular chores. Take this opportunity to discuss saving the additional funds they’ve earned.

It’s important to help children find the right balance between having things today and saving toward what they may want later.

- Judith Ward, CFP®, Senior Financial Planner

GRADES 6–8

Personal finance
In their preteen and early teen years, children may begin earning money outside the home from jobs like babysitting or walking neighborhood dogs. Encourage them to take on additional financial responsibility by increasing the types of expenses you expect them to cover. For instance, you might ask them to pay for movies and other entertainment on the weekends.

Investing for the future
By the time your children reach middle school, they are ready to learn about the benefits of investing. Talk with them about long-term savings goals, such as your retirement and their college education, and how you are using investments to achieve these goals. Explain the power of compounding and help them calculate how savings could grow over time based on a hypothetical rate of return. Of course, it’s also important to let them know that investments are subject to risks, meaning they may lose money.

EVERY AGE

Keep it simple
All children mature differently, and no two families are the same. Only you can determine how much information to give your children and when they are ready to start taking on more financial responsibilities. “The best way to do this,” Ward advises, “is to listen carefully to their questions and answer in a way they can best understand.” It’s also important to teach your children by the example you set. Look for simple, everyday occurrences that offer an opportunity to involve them in money discussions. If they watch you manage the family budget and save for the future, they will be more likely to develop the same habits.

Money Confident Kids®

The information you—and your kids—need to build bright financial futures.

Teaching children about money isn’t a one-time event. Instead, it’s a series of ongoing conversations held in checkout lines, on car rides, at the dining room table, and even in the classroom. Money Confident Kids from T. Rowe Price offers tools, games, teaching guides, and digital magazines to support these conversations.

Parents. Get useful tips on the teachable money moments that arise when children are asking for a cell phone, the family is ordering takeout food for dinner, or a birthday or holiday is approaching. Parents can also test their own money smarts by reading financial blogs for tips, tricks, and tools to help kids become smarter about finances.

Educators. Teachers can play an important role in helping students understand the importance of financial responsibility. Read blog posts specifically aimed at educators, and find teaching tools and activities to engage kids in important money lessons.

Kids. Find games and fun activities—and even download a mobile app—that help kids learn about important financial concepts. They can create their own currency and play online games that show the importance of wise financial planning—all while having fun.

For more information on how to educate your children about money, visit moneyconfidentkids.com.

*T. Rowe Price 2019 Parents, Kids & Money Survey (sample size of 1,005 parents and 1,005 kids ages 8 to 14).

This material has been prepared by T. Rowe Price for general and educational purposes only. This material does not provide fiduciary recommendations concerning investments, nor is it intended to serve as the primary basis for investment decision-making. T. Rowe Price, its affiliates, and its associates do not provide legal or tax advice. Any tax-related discussion contained in this material, including any attachments/links, is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding any tax penalties or (ii) promoting, marketing, or recommending to any other party any transaction or matter addressed herein. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.

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