10 essential money-management skills for children

Parents who help their children understand and use money wisely can also set them on the road to being financially secure adults. As children grow into adults, having base savings to tackle expenses like a first apartment or higher education will make the unpredictability—and the expenses that come with that unpredictability—of life a bit easier to manage.

But a 2016 study from T. Rowe Price finds many parents miss chances in everyday interactions to help their children learn money skills. Making a few small changes to parenting habits may help more than you think. GoHenry compiled a list of 10 financial skills for children to learn how to earn, save, and spend money.

Often, money lessons can be incorporated into everyday activities. For instance, talking about which item on the shelf is the best value turns grocery shopping into a lesson on price comparisons. Or, showing children how they can divide allowance money between savings and spending illustrates basic budgeting. Such early discussions mold their money mindset as they grow. As young adults, from early experiences of earmarking funds between savings and spending, they understand the benefits of having part of their paycheck automatically deposited in savings.

Read on to learn tips and examples to help your child develop skills for better money management later in life.

Since children are not responsible for household budgeting and large financial decisions the way adults are, it can be difficult for them to grasp the concept of money. While planning for the future is typically not on the mind of most children, setting up a savings account early can help them be better prepared for the future. Parents can open a joint account—provided they can for a minor, which depends on statutory laws—where children can access the money in the account with the parents serving as the monitor. The main draw for a savings account would be for earning interest on money in these accounts, but with the COVID-19 pandemic impacting interest rates, earning interest will not be as fruitful as it was in generations past.

Beyond accounts, saving tangible money can have a greater impact on how children understand money. A 2018 University of Arizona study found that it helps children understand what money is, and the importance of saving, if they have hands-on experiences. Simply setting up a jar in the bedroom of a young child, and having them deposit coins helps them see what saving means. When they witness their coins pile up, children begin to learn that money can accumulate when it’s not immediately spent.

Children learn the value of saving when they can also practice how to spend those precious pennies on something of their choosing. Take a trip to the store, and talk about how much the items they’re interested in cost. For young children who haven’t had much experience yet with arithmetic, it can help to link the numbers on a price tag to how long it took to earn or save that amount. “This toy is worth what it took to earn in one week’s allowance,” for example.

Choosing whether to purchase helps children develop control and learn to spend wisely as they mature. For older children who are inundated with temptation both in physical stores and online, ask them to wait one day before buying. With that 24-hour pause, they may decide an item isn’t worth their spending budget.

Developing saving habits early, and with goals in mind, can make debt seem less daunting in the future. Starting a college fund is especially valuable, not just because of soaring tuition costs, but because experts find children will feel ownership in their college education. Even younger children who earn money from allowance or their own entrepreneurial efforts can carve out a portion to put away for college.

By saving earlier for college, children can avoid taking on too much student debt. But, while saving will minimize debt in the future, with decreasing interest rates for bank accounts and rising tuition costs, it will likely not guarantee debt-free higher education—especially if a college degree ends up costing $500,000 by 2030.

Once your children have experienced accumulating money in their piggy banks, or adolescents begin earning money, parents can take a hand in helping them prioritize what they’ll do with those dollars.

A 2018 study from Brigham Young University found early experiences with money management are linked to more savings and better credit as adults, along with parents serving as positive financial role models. Cash that can be divided and earmarked for various purposes helps young children visualize what budgeting means. This also helps them carry these habits into the future. And as money management will be increasingly conducted digitally, using budgeting apps when financial planning with your child may also be fruitful.

Grocery shopping with your children can be a great opportunity to teach them how to get the best value. Before you leave, clip coupons and explain that if you buy that featured item and hand coupons to the cashier, they’ll be able to save a little money for something else. And, when you’re searching shelves, point out the price of different brands for the same products. Calculating the cost per weight or ounce is another good lesson in pricing differences while also sharpening their math skills. 

As early as they’re able to perform simple chores, like putting away toys in a bin, children can learn that money can be earned—even if the paycheck comes from their parents in the form of allowance. More than four out of five parents believe providing an allowance should come with some exchange of labor, according to a 2019 study from the Association of International Certified Professional Accountants.

Since many children are enthusiastic to earn money from their own efforts, they might also find opportunities for babysitting, shoveling snow, watering gardens, and more. Parents can help them scout out opportunities that may be open to them in their neighborhood. Part-time employment, like being a lifeguard or store clerk, becomes available when teens are legally eligible to work. Here again, parents can help them decide whether it’s worth it to take a certain position, or if they might make and learn more with their own gig.

Teens who are enthusiastic about a hobby or task might be able to turn it into a business. If your teens enjoy sports and like young children, they can think about beginning a summer sports day for neighborhood children or serving as a referee for local recreational sports.

As of early 2022, some 336 cities participate in ACTON business fairs. At these fairs, which are often located in parks or community centers, many children display their own businesses and sell their wares. Teens that are serious about making their business work may be able to tap a mentor through SCORE, a nationwide network of experienced volunteers who can help aspiring entrepreneurs with feasibility plans.

Early on, introduce your child to investing by taking them to the bank to open a savings account. Showing kids how a savings account earns interest can help teach them how different investments can yield different returns.

Of course, any investing lesson should include warnings about the possibility of losing money, too. Start by talking with your children about a possible company you can all invest in; perhaps it’s a company that provides a product or service they love. Then, trace the prospects of that particular firm by looking at the price chart for that stock.

Trips to the store pose many teachable moments. In addition to comparing prices, explaining why you’re waving a plastic card at check-out—whether debit or credit—helps children learn the difference between paying now or later. Share why you might be choosing a credit card and explain the interest charges for delaying payback.

For example, you might not want to purchase a new computer in cash because you had other important expenses that month—such as utility bills or car payments—but you’ll have the funds next month to pay the purchase off. You might add how using credit impacts your credit score, which is like a report card that credit bureaus keep on individuals. These lessons show that borrowing isn’t inherently bad, but that you need to have a reasonable plan to pay everything back.

Helping children with their money management skills pays many benefits. Besides imparting practical lessons like how savings can earn interest or credit cards aren’t a plastic magic wand, parents show children how values figure into money management.

Tell children why you support various causes or groups, and how you try to balance your money between what the family needs now and what will be needed later. Have children earmark their own dollars by talking through their personal priorities with you. Maybe they are concerned about the environment, and they want to contribute to a clean ocean fund. Or, by discussing what they spend money on weekly, they may decide forgoing a treat is worth it if they’re building a new bike savings fund. You’ll be showing that future needs and supporting worthy causes are as important as the gratification of spending now. The patience, generosity, and emotional control a child develops through an early, healthy relationship with money will pay lasting dividends.

This story originally appeared on GoHenry and was produced and distributed in partnership with Stacker Studio.