Tip 1: Introduce delayed gratification
Before you get to the concept of money, start with something that hits a little closer to home with children—such as sweets.
Try your own version of the marshmallow test. Offer your child the choice of one treat now or two treats later. The latter helps them develop patience and appreciate that delayed enjoyment can result in greater satisfaction in the future. Delayed gratification is what saving and investing are all about.
Tip 2: Define money
Explain to your children the reasons why you go to work each day—including to earn money. Your time is worth something, and so is theirs. The money you earn buys the things your family needs: a place to live, food, clothes, a car to drive, and more. And you only have so much money to spend, so you need to prioritize the things you need versus want—help them understand the difference between the two.
Tip 3: Spending, saving, and sharing
Once your kids are old enough to know what they want to buy, consider setting up three clear (so they can see what’s inside) jars: one for spending, one for saving, and one for sharing with others. Explain what each jar is for and help them decide how to spread the money they earn to each.
Spending—Let them buy whatever they want with this money. If your child regrets a decision, they’ll likely learn from it and may think longer and harder the next time they spend money. This can help them learn about opportunity costs—if they buy one thing, they can’t pay for another.
Saving—Help them choose what they want to save up for, maybe in 6–12 months from now. Make their goals SMART: specific, measurable, achievable, realistic, and time bound.
Sharing—Get them used to sharing with others financially, not just lending a toy. Make charitable thinking and behavior a habit for life.
Consider matching what they put in their “saving” or “sharing” jar to give them an incentive to delay their own gratification. And when they get older, introduce a fourth jar: investing.
Tip 4: Effort-based allowances
Empower them to earn their money, instead of just granting them a weekly allowance, helping form a strong work ethic. Create a menu of chores your children can do around the house and assign a dollar value for completing each. The more they work, the more they earn. Refer to their SMART savings goals and help them understand how much quicker they can reach their savings goals if they do five chores each week, instead of three, for example.
Tip 5: Help them get organized
Teach your kids to keep track of their progress toward their goals. Later in life, this step evolves into creating and maintaining budgets, cash flow statements, and asset statements. For now, keep it simple: a thermometer or other illustration that allows them to gradually color in the object as they get closer to a savings goal. Set checkpoints along the way to celebrate their progress and motivate them to keep going.
Financial literacy for kids should be enjoyable
Above all else, make it fun! You’re trying to plant the seeds of responsibility, prudence, and thoughtful decision-making. Kids may turn their backs on your lessons if they’re not enjoying themselves. Find the right balance between education and enjoyment—you don’t want money skills to become a chore for both of you that no one gets paid for.
The content of this document is for general information only and is believed to be accurate and reliable as of the posting date, but may be subject to change. It is not intended to provide investment, tax, plan design, or legal advice (unless otherwise indicated). Please consult your own independent advisor as to any investment, tax, or legal statements made.