Children begin to internalize money habits by an early age, so it’s important to introduce them to money as soon as possible and help them to internalize smart habits about saving, and spending money.

To help build your children’s financial literacy, it’s a good idea to:

Introduce Them to Money

You should start introducing your child to money around age five. However, you may decide to begin this process earlier or later depending on your child’s development. In general, it’s better to start with:

  • Describing the different coins and bills, such as how much they’re worth, what they’re made of, and the historical figures that appear on them.
  • Showing them how money comes in other forms, too, such as checks, debit cards, and credit cards.
  • Teaching them about currencies from other countries and how they differ.
  • Encouraging their creative side by helping them to create their own currency and using it during playtime to “purchase” items around the house.
  • Explaining how items cost money, how much different items cost, and how you earn money by working.

When your child reaches their tweens or teens, show them how to write and deposit a check. Although digital transactions have come to replace checks, there may still come a time when they need to know how to write one. This is also a good age to introduce children to online banking, digital transactions, and ATMs.

Teach Them About Earning Money

To help teach your child about earning money, a good option is to provide them with an allowance for completing chores around the house. Compare their completion of tasks to how you earn money by working, and explain that this allows you to afford your house, car, food, and fun family vacations. You can then encourage your child to save their allowance so that, over time, they can save enough money to purchase something they really want.

Once they’re a little older, encourage them to earn money outside of the home, too. Maybe they want to start a lemonade stand or bake sale, walk dogs, or babysit for a neighbor. Then, once they earn some money of their own, help them to decide whether they should save or spend it.

Show Them the Importance of Saving

Around age five, you can start teaching your children about the importance of saving money. Let them pick out a piggy bank and show them how they can place money into the bank to save up for a toy or a treat. Over time, show them that their savings will grow as they deposit more money. Help them to count their money and think about what they would like to buy and how much they need to save. Discuss how much a toy or treat costs, and how long it would take to purchase that item.

If your child is having a hard time saving money, you may decide to reward them for saving. For example, for every $100 they save, maybe you’ll give them $10 in return, or else allow them to pick out a toy or video game.

Educate Them About Smart Spending

To help children learn about smart spending, you need to help them to differentiate between wants versus needs. Whenever you go shopping for food or household items, explain what you’re purchasing and why. Teach them that there are limits to how much you can spend and that you must stick to a budget when making purchases.

When your child reaches their tween or teen years, you may decide to open a student checking and savings account for them and teach them about deposits, withdrawals, point-of-sale transactions, overdraft fees, spending and saving habits, and so on. If your child is not ready for a student checking or savings account, an alternative is to start them off with a prepaid debit card. This will show children the gist of how debit cards work while also teaching them how to manage their spending, i.e., think about how they would like to spend their money and not spend more than they have.

Practice What You Preach

One of the best ways to encourage your children to adopt good money habits is to practice good money habits yourself. Children absorb information from all around them, and there’s a good chance they will pay attention to how you discuss and spend money. Talk with them about how you earn money, what you spend money on, and anything you’re saving up for. Bringing your children into the conversation will help them to feel included and important, and they’ll be more likely to build good habits like strong financial literacy.