A guide to teaching kids about spending and saving money

While providing for your children's physical needs is one of your responsibilities as a parent, it's also important to teach them what they need to know to be prepared to become independent adults when they leave home. These elements of parenting often go hand-in-hand, especially when you're considering how to guide your kids in providing for their own needs in the future. No matter the age of your children, you can start teaching kids about spending and saving money.

Financial literacy at any age

According to the 13th Annual Parents, Kids & Money Survey by T. Rowe Price, more than half of parents miss opportunities to discuss saving money in general with their children. The same report noted that 36% of parents surveyed feel very or extremely reluctant to discuss financial topics with their kids. But half of the children surveyed commented that they wished their parents had taught them more about saving money, emphasizing the importance of discussing this vital topic with kids.

Financial literacy is a basic understanding of financial topics, including debt, budgeting, and the various financial instruments available. When parents understand the importance of paying off debt, creating and sticking to a budget and managing their credit history, they can work toward teaching kids about finances. But parents who struggle with financial literacy may not be able to pass on knowledge or good habits to their children, resulting in challenges that span multiple generations.

Begin with the basics

When you start talking to kids about spending and saving money, start with basic information. There’s no need to jump right into overwhelming topics that go beyond their ability to understand. If you have kids younger than seven, you can begin by introducing them to cash and coins. Talk about what each bill and coin is worth and help them learn how to form dollars and add up the amounts. You can also describe how much things they're familiar with cost so they can start understanding the value of money. 

If you use a credit or debit card, talk to your kids when they're with you at the store. Explain that the card represents money you have in your account and how you can use it to pay for goods and services. Some parents show their kids the receipts for the items they purchased, helping them learn more about the cost of their purchases. Even discussing fun facts about money and spending is a simple way to start for younger kids.

Emphasize the importance of saving

For most kids, money seems to burn a hole in their pockets, and they're eager to spend as soon as possible. If your children receive cash as a birthday or holiday gift, they might ask you to take them to the store to shop for something new. Kids often associate money with what they can buy and how they can spend it. But it's essential to teach children about saving and why it's important now and into the future. 

Young children might be unable to grasp the concept of saving money for the future, but when you help instill this habit, it becomes easier to understand. When your children receive money, encourage them to place a portion of the total amount in a piggy bank or another mechanism for saving. You might establish a set amount they'll save, like a percentage of the total. Some parents match what their children save to help their accounts grow more rapidly.

Teaching your kids to save money benefits them in several ways. Beyond helping them to prepare for the future, learning to save can teach the principles of delayed gratification and discipline, both of which are important as children grow and develop. Understanding how to plan and set goals can also be valuable lessons in a child's life. If your kids struggle to put aside money, encourage them to create a mantra that resonates, such as “it feels good when I save for my future” or “saving is a good habit to start early in life.”

Set up a bank account for each child

Setting up a bank account for each child establishes a place where kids can save money and watch the amount increasing over time. Whether your kids will be spending from the account regularly or using it to save for the future, you can decide if you want to set up a checking or savings account.  

Encourage smart money decisions

If your kids seem to spend money as soon as they get it, sit down with them to discuss how to make smarter financial decisions. When you decide to provide an allowance or salary for their tasks around the house, emphasize that this is the only money they'll receive unless they want to complete additional chores. They might struggle with the desire to spend it initially but don't give in to their demands for more money to buy other items or participate in activities.

When your kids inevitably ask for money, use each situation to remind them about saving and planning for the future. Children don't always know when a chance to do something fun will come up, but by setting aside some of what they earn, they'll be ready when the latest toy comes out or friends invite them to see a movie. 

Offer opportunities to earn money 

One of the best lessons for kids to learn early on is how to earn their own money. If you're currently giving your child an allowance, consider what chores they could do around the house to make money. You might offer opportunities to obtain additional money by completing tasks in the yard or taking care of younger siblings.

If you're emphasizing the importance of saving, discussing this concept every time your child earns money is a great idea. Some kids become financially savvy enough to negotiate raises to their allowances, such as by offering to complete additional chores. If your kids have a bank account they can access with a debit card, consider depositing the money directly into that account to make the transaction feel a little more like it will when working outside the home.

At Alliant , we can help you and your family prepare for the future. We offer a range of account options to meet the needs of each of our members, including both a Kids Savings Account and a Teen Checking Account, which are both equipped with the tools parents need to pass along good financial habits.

Learn more about planning for the future with your finances:

• How to adjust your budget for inflation
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