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Small Steps to Raise Money Smart Children

May 2022

Barbara O’Neill, Ph.D., CFP®, AFC®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension

With Money Smart Week, Financial Literacy Month, Military Saves Month, and National Teach Your Child to Save Day now in the rear-view mirror (until next April), now is a good time to discuss follow-up financial education action steps for children. It is never too early to begin teaching them personal finance concepts.

Learning how to use money takes years and children are influenced by many sources. They watch their parents, siblings, and friends spend money and learn from them. They also watch television advertising and social media and are encouraged to buy things. Parents are generally a child’s greatest financial influence, however.

What to do? Below are ten small steps to raise money smart children:

Be a Financial Role Model- Children are more likely to develop good financial habits when they observe that their parents have them. This includes budgeting, saving/investing, using credit wisely, living within their means, checking account reconciliation, and keeping good financial records.

Teach Scarcity- Allowances can be an effective tool to teach children to live within their means. One of the best experiences children can have is when there is not enough money to buy everything they want. When this happens, they quickly learn the concept of scarcity and how to set priorities when making spending choices.

Address Negative Cash Flow- If children run out of money before their next allowance, there are several alternatives. One is to let them learn from past mistakes and do without. Another option is to loan the needed money with an agreement prior to the loan on a repayment schedule and-perhaps-interest.

Let Children Fail- Sometimes children will buy things that their parents consider useless or silly or items that are cheaply made and break or rip easily. When this happens, it is important for parents to not be overly critical. Children will learn from their own mistakes. Experience, both positive and negative, is a great teacher.

Consider a Match- To encourage savings, parents might decide to match money set aside by their children for long term goals such as college, travel, and “big ticket” purchases, similar to an employer-matched 401(k).

Start a Savings Challenge- Encourage children to complete the 52-Week Youth Money Challenge (PDF) to save $200 in a year ($300 with additional savings from gifts and matching from parents or grandparents).

Praise and Curate- Compliment children when they make good financial decisions or progress toward their financial goals. Conversely, avoid dictating their every financial move. Be a “guide on the side” and curate good financial options for children so that any choice they make from among 3-5 alternatives is a good one.

Find Resources- Two resources that appeal to children are kid-friendly Moonjar cardboard savings banks with compartments for long- and short-term savings and charitable gifting and the Jump$tart Coalition Clearinghouse which contains a large online library of financial education materials.

Reinforce "Money Math"- Young children, especially, can learn a lot about personal finance through math. For example, the value of different coins/currency and adding/subtracting money. Another key concept is percentages. Parents might discuss the value of charity and encourage a percentage of allowances be gifted.

Leverage Everyday Experiences- Daily errands and activities can turn into financial education lessons. Examples include visiting a bank or ATM machine, writing a check, or swiping a credit or debit card.

For additional information about children and money, review this Kansas State University Extension fact sheet (PDF).