By: Shawn Mars

As parents, we understand the importance of financial literacy for our children. But, where do we begin? What should be taught, and when is the right time to teach it? In this piece, I’ll share several techniques to help your children develop smart money habits.

The following suggestions cover a wide range of financial concerns for children of different ages and stages. I hope they’ll inspire you to come up with creative approaches to teaching your children about money. But before we get started with the advice, let’s first define financial literacy.

1. Demonstrate Good Financial Habits

Children are always observing and learning from their surroundings. Therefore, modeling healthy money habits can be a valuable way to develop financial literacy in them.

But what exactly does this mean? It starts with breaking the taboo around discussing money. Show your children how you save, spend, invest, track, and budget, and involve them in these processes. Talk about your finances openly and regularly, using the ideas discussed in this article as a guide.

By regularly demonstrating healthy financial practices, you help your children absorb these important skills over time. Through consistent exposure to these lessons, they’ll learn about money in an organic and natural way, which I like to call financial literacy by osmosis. It’s simple, accessible, and can be quite effective!

My husband, our siblings, and I all developed strong financial habits from our parents in this way. (You don’t need YouTube videos, online courses, or parenting books.) Despite our different personalities and spending tendencies, we all grew up with a solid understanding of money.

Keep in mind, though, that perfection is not the goal. Sharing your financial mistakes might actually be just as instructive. This teaches your children that mistakes are part of the learning process and not something to be ashamed of. They’ll also see that errors can offer valuable lessons that can help them grow and make smarter decisions in the future.

2. Teach Your Children To Save Money

Saving money is one of the most fundamental financial skills that children can learn. It’s often easiest to introduce this concept in a hands-on way, especially with younger children. For example, picking out a piggy bank together and depositing money they earn, find, or receive can be a fun and engaging activity.

A basic ceramic piggy bank is a great starting point for young children. Dropping coins in the slot, hearing the sound of the coins fall, and picking up the piggy bank to feel how full it is can be exciting for them.

For somewhat older children, a clear plastic piggy bank that counts the coins as they drop in can be a good option. This helps kids learn about different coins and see how their money grows.

3. Encourage Your Children to Begin Investing

At some point, your children will be ready to manage their own investments. However, you don’t need to wait until then to begin investing their funds. You can start by opening an investment account for them, possibly as soon as they receive extra money from a birthday or holiday.

Since minors can’t open and manage investment accounts, you’ll need to set up a separate account for them and manage the investments on their behalf. These accounts are called custodial accounts in the United States and informal trusts in Canada.

Once the account is open, you can use the lessons shared in this article to teach your child how to invest. They will be able to watch their investments grow over time, which can help build their confidence and interest in investing.

Once they reach the age of majority, they’ll be legally able to manage their investments. Although this might seem risky at first, you can feel more confident knowing your child was involved in the investment process from the start.

Because they’ve worked alongside you to grow their investments, they’ll likely feel a sense of ownership and responsibility, which will encourage them to take care of their assets once they have full control.

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4. Go Shopping as a Group

It might seem counterintuitive at first, but taking children shopping can be a great opportunity to teach them about money management. Sooner or later, your children will need to spend money, so why not help them learn how to make smart purchases?

Shopping together is a good way to demonstrate financial literacy. You can show your children how to make thoughtful decisions when purchasing items, especially when it comes to buying things on sale.

Here are a few ways to incorporate financial lessons into your shopping trips:

Take Advantage of Discounts

Purchasing discounted items is a great way to save money while shopping. This could include using apps like Flash Food to buy discounted groceries or shopping clearance racks at clothing stores. Afterward, you can break down the savings with your children to show them how much money you saved through discounts.

5. Promote Delayed Gratification

I believe that being able to embrace delayed gratification is an essential part of financial well-being. Children who can delay gratification tend to:

• Develop a longer-term mindset.
• Make more thoughtful financial decisions.
• Avoid impulse purchases.

Delayed gratification is important because it helps children understand the value of planning ahead and prioritizing needs over immediate wants. This skill can be vital for building a strong financial future.

6. Talk About Financial News and Current Events

Today’s children are constantly exposed to information, and they can easily become interested in the latest trends, fads, or tactics. Whether we like it or not, our children will encounter financial news and current events. Instead of avoiding these topics, we can use them as a chance to build their financial literacy.

You can accomplish this by watching news reports with them, breaking down the stories in ways that are easy for them to understand, and providing age-appropriate explanations about the “whys” and “hows” behind the headlines. This can help them develop a clearer understanding of the world of finance.

7. Show Your Children How To Avoid Debt

Debt can be a significant burden, and it can be especially challenging to overcome if it’s incurred early in life. The key is to help your children avoid falling into such situations.

One way to do this is by explaining that credit cards and loans are not “free money”; they must be repaid with interest.

Encourage timely payments and explain how high-interest debt, like credit card debt, can quickly grow due to compounding.

It’s important to note that some types of debt, like mortgages or student loans, may be necessary, while others, like credit card or car loan debt, are often avoidable. Teaching children to understand these distinctions can be very beneficial in shaping their financial future.

8. Encourage Your Children to Begin Investing (Again)

As mentioned earlier, you don’t have to wait until your children are adults to start investing. Once they receive extra money—perhaps from a holiday or birthday—you can set up an investment account on their behalf.

Since minors can’t open investment accounts, you will need to establish a custodial account (in the U.S.) or informal trust (in Canada) for them.

When they reach the age of majority, they’ll have full control over the account. By that time, your child will likely have a strong sense of ownership over the account and an understanding of how their investments have grown, thanks to your involvement in the process from the start.

Disclaimer: The information provided in this article is intended for general informational purposes only and should not be considered financial advice. We encourage readers to seek the advice of a qualified financial professional before making any decisions related to their personal finances.