Raising Money-Smart Kids

As parents, we want the best for our children, both now and in the future. But there’s one fundamental life skill many parents overlook - how to manage money. It is never too early to start teaching kids about money, in fact, the earlier the better. Cultivating a healthy relationship with money can start as young as two years old, and research has revealed that by age seven, money habits are formed. With kids’ brains like sponges absorbing everything (including money matters), it’s critical to shaping a child’s ‘money message’ in the right way.


“Each day of our lives we make deposits in the memory banks of our children.  “


Charles R Swindoll



As parents, we want the best for our children, both now and in the future. But there’s one fundamental life skill many parents overlook - how to manage money.

It is never too early to start teaching kids about  money, in fact, the earlier the better. Cultivating a healthy relationship with money can start as young as two years old, and research has revealed  that by age seven, money habits are formed. With kids’ brains like sponges absorbing everything (including money matters), it’s critical to shape a child’s ‘money  message’ in the right way.  


Here's 8 strategies to encourage positive financial habits

1: Build financial capability

Financial capability is the power and confidence to make the most of your money through smart financial decisions. 

You don’t have to be a financial guru to teach kids about money. But you do need to understand what it takes to build ‘financial capability.’ There are two core components:

·   Financial  knowledge – helping kids understand dollars and cents, what is good money management and what financial terms mean.

 ·  Financial  behaviours – modelling what positive financial behaviours look like including what we tell our kids about money and our attitudes towards money. As parents and role models, what we say and what we do with our finances must be in alignment.

Parents must also be in alignment and on the same page when it comes to money messages.  When parents have different attitudes, values and beliefs about money,  it creates confusion and conflict within a child.


2: Healthy money messages is key

What parents think about money rubs off on their  children. Money beliefs such as ‘we live in abundance’, ‘we’re grateful and express gratitude for what we have,‘love comes from who you are, not what you have/give,’ ‘there’s plenty of money to go around’, ‘money is a tool for enhancing life’ are healthy financial attitudes that help create positive money habits in young ones, long-term.

But what if your financial beliefs are  different? It may be valuable to reflect on why you have certain helpful and unhelpful thoughts about money, and how your psychological relationship with money was formed. I bet it was formed in your younger years.

To reboot your financial beliefs, our article 7 powerful questions to unlocking your money story is a great place to start. When you transform your thoughts and relationship with money, you can be a more effective teacher and positive role model to the next generation.

If you have daughters, this one’s for you! It’s important for all children, but especially daughters, to feel empowered and  confident with money. By teaching good money management early on, kids can learn to take control of their financial futures, and not rely on their partner (or husband) for financial security.

Financial independence provides choices and flexibility. Without this, people (especially women) can feel stuck and controlled in relationships.

When educating kids about money, the key is to show,  not tell. Instead of lecturing about money, it’s more effective to get kids to watch what you’re doing and saying day-to-day.

These messages and behaviours need to be consistent, not just in you, but with your spouse also.  If a child has a mother saving money and budgeting and observes their father as a spendthrift, these conflicting money messages are extremely harmful.  

One of the greatest gifts you can give your children is to be on the same financial-page as your spouse.  I can’t stress this enough.

3: Praise and reward can be a slippery slope

It’s good to praise and reward children for being  smart with money, but it comes with a caveat. Excessive praise for being financially generous and thoughtful can have adverse effects. For example, kids may feel that being generous and buying people things is a tool to gain  love and acceptance. Or they may receive constant reinforcement when putting other people’s needs (and financial desires) before their own, leading to unhealthy money habits.

To learn more about how your words and actions may  be influencing your child’s long-term financial behaviour, check out our article 8 money types. Your money type/s (or personalities) are the result of the way you experienced, observed  and learnt about money as a child. With this lens, it’s important to be aware of the money messages you’re teaching your child, and whether the financial patterns you’re passing on are positive or negative.


4: Make money visible

With digital banking and credit cards the norm, physical cash is becoming a thing of the past. Money has become an abstract, invisible resource that has the capacity to slip through our fingers quicker than the real stuff. For kids to connect with money, they need to see it.

When explaining savings concepts to young children we recommend using clear jars labelled save, spend and give. This way, they can  see and handle money, which makes learning about it more impactful. Although  many people now bank online, visiting your local branch can be a great  learning opportunity. Once your child has accumulated a significant amount in  their ‘save’ jar, consider taking them to the bank to open a savings account.  On subsequent trips, encourage your child to fill out the deposit slip and  interact with the bank teller. By empowering them to take charge of their finances, you’re building their confidence and character.

There are also apps like Spriggy to assist with giving children their own money to manage.


5: Encourage kids to earn their own money

To help grade-schoolers understand the value of  money, give them opportunities to earn money by doing odd jobs around the house. Whether it’s helping them set-up a lemonade stand, making their bed, setting the table for dinner, washing the neighbour’s car, mowing the lawn, doing gardening, walking the dog, or any other activity that you can think of, earning an income gives children the gift of learning how to earn, save and spend money.


6: Values-based spending

When kids are ready to spend their hard-earned cash or birthday money, give them some autonomy over spending decisions.

Here are a few spending messages may be helpful to discuss:

·         Talk about values when spending money. Are they buying things that are aligned with their values and goals? (You might need to first teach them what these are)

·         Get  your child to think about buying vs. saving. Suggest spending some money today as well as saving some for the future. Try not to encourage blowing all their  savings in one go, but also don’t force them to save it all. Balance is key here.

·         Chat about the difference between saving and investing (this topic may be more relevant for older kids). My blog here provides a great base for the discussion

·         Talk about saving as the best way to get what they want (e.g. a new toy or video game)

·         Consider educational books to get across key money messages. Charlie and Lola: I Really, Really Need Actual Ice Skates by Lauren Child is a great book to help kids around 3 to 5 understand the traps of emotional spending.


7: Express Gratitude

We live in a consumerist society where there’s  always the latest and greatest item to buy. It can be easy to succumb to  overspending, especially for kids. The key is to encourage children to be  content and grateful for what they have. The more you desire material items, the more dissatisfaction it brings. Helping children understand this lesson is crucial, not only to foster positive money habits, but to nurture happiness and wellbeing through life.

It’s important for children to view life through a lens of abundance rather than lack and not-enough.  Practicing gratitude remedies this.


8: Set financial goals

Help them set realistic financial goals, and this  can be accomplished through your child’s save, spend and donate jars. Set a target for each jar and help your child decide what the money will be used for. By setting goals for each jar, you are helping to teach several  important concepts including budgeting, delayed gratification and the  satisfaction of helping others.

To make goal setting fun, you can create a savings goal colouring-in page or create a vision board with your child. Cut out images from magazines or find images online that reflect your child’s primary goals.

Taking control of your money at any age by increasing financial literacy/knowledge is incredibly important. In Australia, financial literacy in kids is declining and the stats paint a bleak picture:

·         The average savings balance of 16 to 20-year-old is $258, and 21 to 25-year-olds is $548

·         The average wage of a 21 to 25-year-old is $791 a week, representing savings of a pitiful 1.3% of their annual wage.

At present, there is a movement to introduce  financial literacy into the Australian curriculum. When this occurs, it won’t be a financial silver bullet.

The role parents play in helping their kids learn about money will always make the greatest impact. In fact, teaching kids about money is one of the best educational foundations parents can give.

If teaching your child about money seems a daunting  proposition, you may look to improve your own relationship with money first.  A money coach can help build your financial confidence and knowledge, so you have the know-how to effectively teach the next generation.

Think of it as an investment in you and your child’s future.

Want more financial tips and inspiration for you and your family? Visit me here.  


Karen Eley is a financial coach with more than 20 years’ experience as a financial adviser. Through her business, Women Talking Finance, she helps women to be confident and knowledgeable about all things finance. Karen translates complex financial concepts into simple digestible ideas.

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