Your essential financial education checklist
We wear so many hats when it comes to raising our little ones. We're their cheerleaders, life coaches, and sounding boards; we're anything they need us to be, really. One moment we're pretending to be astronauts exploring the universe, and the next, we're trying to convince them that broccoli tastes great. Parenthood is certainly an adventure.
And while teaching kids about money may not be as exciting as playing superheroes, building model aeroplanes or experiments in baking, it's an essential responsibility of being a parent.
The world of finance can be a maze, and we want our kids to be prepared with the right tools and knowledge to navigate it successfully. The younger they start learning, the better equipped they will be to make smart decisions as they grow older.
So where do we begin, what do we say, what do we do? Here's a checklist that helps cover off the essentials.
1. Talk about money regularly with your kids
Everyday life is full of interesting and relevant teaching moments. For example, during dinner, discuss how you saved money on groceries or share a story about a recent financial decision. When you take them shopping with you, explain why you're buying one brand instead of another. Involve them in budgeting for a family trip.
Ask them how they want to spend their pocket money and what they want to save for. It’ll get them thinking about how they want to manage their money and it’s very empowering. In return, encourage them to ask their own questions.
Money is a fundamental part of life. Having fun and age-appropriate money conversations will help your kids develop a healthy relationship with money early on. They'll learn how it works and build the skills to manage it wisely.
2. Start pocket money early
Regular pocket money helps kids understand the basics of money management and pick up skills such as budgeting, saving, and spending wisely.
Introduce an allowance or pocket money system as soon as your child is old enough to grasp simple money concepts. While this could be sooner or later for your family, research1 suggests that the ideal age for kids to start receiving an allowance is 5 or 6.
A regular pocket money system also gives some amount of financial independence. When kids are allowed to manage their own money and make their own money decisions, they'll also learn how to manage the consequences of those decisions. So, wiping out their pocket money by Day 2 of the week isn't the worst thing in the world. Going without pocket money until their next payday will teach them much more than any lecture.
3. Teach them the difference between needs and wants
Needs and wants both cost money, and learning how to prioritise between the two will go a long way in helping kids manage their money better. Now and in the future.
Help your kids understand the difference between things that are necessary to have (such as lunch, clothes, bus fare etc.) and those that are nice to have (such as snacks, games, etc.). Ask them to categorise the items they want to buy into needs and wants and discuss why certain items belong to each category. Then help them prioritise what they spend their money on.
A study2 published in the Journal of Consumer Affairs showed that understanding this concept is crucial for developing responsible spending habits.
4. Help them set savings goals
Whether it's for a new toy or game, some fun money for the holidays, or a rainy day, getting your child to set a savings goal will help them learn to save. And even get a little bit excited about it. Research3 has shown that children who had savings goals saved more money than those who did not.
Goals help kids understand the importance of saving, and the eventual thrill of reaching a goal does wonders for their sense of achievement. It's a great way to nurture a smart money habit.
Set achievable goals, and help your child keep track of their progress. Celebrate milestones, reward them with praise (or a bonus contribution to their goal) and make a big deal about them hitting their goal.
5. Help them make smarter spending decisions
A vital part of teaching kids how to save is teaching them how to spend smart. A regular allowance will help with this. When they understand their pocket money’s on a schedule, they’ll have to learn to budget to make it last.
This includes finding a balance between spending now and saving for later.
Kids need to learn that spending isn’t just about buying things they want and having those things immediately. They’ll also need to spend on things they actually need (like food or bus fare) and learn to prioritise where their money will go.
Smart spending is really just about making better decisions. Allowing kids to make their own decisions helps them learn accountability. It teaches them the cost of their decisions. And letting them run out of money is also good. They’ll start to figure out just how far their pocket money will stretch, how to make it stretch further and start making those better decisions.
6. Teach them delayed gratification
Another big tick in favour of savings goals is that they help kids learn about delayed gratification. Delayed gratification is the ability to resist the temptation for an immediate reward and wait for a later, often larger or more enduring, reward.
Set a savings goal together and plan for how they're going to achieve it. Create a countdown calendar or a reward system to keep them motivated and help them practice patience. And finally, celebrate when they achieve their goal.
When kids learn to set goals and accomplish them after delayed gratification, it helps them better understand the value of their purchases. Research4 from Stanford University demonstrated that children who were able to delay gratification had better long-term financial outcomes.
7. Let them make mistakes
Allow your children to make mistakes with their money. Every frivolous spend, post-purchase regret and pocket-money-less day is a teaching moment. And they’ll have you to guide and support them through those missteps.
Rather than a lecture or an I-told-you-so, your kids will benefit from understanding what went wrong, what they could have done differently and how they can make better choices in the future.
8. Give them opportunities to ‘earn’
Giving your kids pocket money is great. But one of the more important money lessons kids need to learn is that it is earned, and they're not entitled to it. So help them learn to work for it. Not only does this introduce them to the concept of income, but it also teaches kids about value. Kids value the money they earn differently from how they value money they are given for free.
One way to help them learn to earn is to pay your kids pocket money only once they've completed their weekly chores (even if you don't pay them to do chores). Another idea is to set specific chores that your kids can do to earn extra pocket money.
A study published in the Journal of Economic Psychology5 found that children who earned their own money developed a stronger work ethic and appreciation for the value of money. Further research6 reinforces the notion that early work experiences can lead to better financial habits and attitudes later in life.
Read why chores are so good for kids.
9. Lead by example
Kids pick up a lot of their habits and behaviours by watching their parents. They’re learning from us even when we’re not actively teaching them anything. So even when it comes to money, what they observe us do, is what they’re going to start emulating.
Research7 suggests that observing how their parents manage their money and parental influences have a direct impact on the development of a child’s financial capabilities.
As parents, it’s up to us to demonstrate healthy financial habits and responsible money management. Every day we’re setting an example for our kids, This sets a positive example for your children and reinforces the lessons you are teaching them.
10. Make learning about money fun and interactive
Yes, money is serious business and managing it well it is an essential life skill, but learning about it shouldn’t be dry or boring. Or kids will never learn. Making it fun means children are more likely to actively participate in learning, get creative with how they learn to manage money and more importantly, retain what they’ve picked up.
Fun activities such as planning a savings goal and regular conversations can provide hands-on experiences and promote active learning. This helps kids understand concepts through practical application and experimentation. Positive interactions with money, such as earning some extra dollars for special chores or hitting their savings goals, create healthy and happy associations for kids and help boost their confidence.
1 Palmer, S., & Palmer, B. (2014). The 5 Money Conversations to Have with Your Kids at Every Age and Stage. Thomas Nelson
2 Xiao, J. J., Ahn, S. Y., Serido, J., & Shim, S. (2016). Earlier Financial Literacy and Later Financial Behaviour of College Students. Journal of Consumer Affairs, 50(1), 74-96. DOI: 10.1111/joca.12068
3 Otto, A. M. C. (2013). Saving in childhood and adolescence: Insights from developmental psychology. Economics of Education Review, 33, 8-18. DOI: 10.1016/j.econedurev.2012.09.005
4 Mischel, W., Ayduk, O., Berman, M. G., Casey, B. J., Gotlib, I. H., Jonides, J., Kross, E., Teslovich, T., Wilson, N. L., Zayas, V., & Shoda, Y. (2011). 'Willpower' over the life span: decomposing self-regulation. Social Cognitive and Affective Neuroscience, 6(2), 252-256. DOI: 10.1093/scan/nsq081
5 Webley, P., & Nyhus, E. K. (2006). Parents’ influence on children’s future orientation and saving. Journal of Economic Psychology, 27(1), 140-164. DOI: 10.1016/j.joep.2005.06.016
6 Kim, J., & Chatterjee, S. (2013). Childhood financial socialization and young adults' financial management. Journal of Financial Counseling and Planning, 24(1), 61-79.
7 Serido, J., Shim, S., & Tang, C. (2020). A Developmental Model of Financial Capability: A Framework for Research and Policy. Journal of Consumer Affairs, 54(2), 564-599. DOI: 10.1111/joca.12320