9 Tips for Teaching Kids About Money

Think back to your education in personal finance. Did you learn about money management at home? At school? Through trial and error?

Entering young adulthood and the workforce with a solid understanding of money management can give you a real leg up in the long run. Unfortunately, many young people aren't getting an education in the fundamentals of financial independence, such as budgeting, investing, and saving.

It's really up to each of us to ensure that the next generation is prepared to thrive as adults. Otherwise, it might take them years to figure it out, all while saving too little and spending too much—both of which are huge barriers to financial security.

Here, we share our top tips for instilling healthy money habits at three crucial stages of your child's life.

The first thing that you want to instill into young people is the value of money. Even small amounts of money can give them some freedom, but money also brings a sense of responsibility—they have to live with how they spend their money. An allowance is a good first step, especially if you tie part of it to chores that could help develop a strong work ethic. Once they've earned a bit of money, they can begin practicing a life-long skill: how to spend money wisely. You may find that kids make different choices with their own hard-earned money than they would with someone else's.

At some point, your kids are going to want things that exceed their allowance. Encourage them to set aside part of their allowance for savings—which also teaches them the concept of delayed gratification. Nudge your kids to develop a routine of setting aside a small portion—say, 10%—of every dollar they receive. This will help them understand the value of thinking both short- and long-term about their spending and saving.

As your kids get a little older—especially as they get into their preteen years—you can consider opening a custodial brokerage account. Along with gaining a sense of ownership, your child can learn the importance of researching and managing their assets. Keep in mind there may be unique tax considerations for custodial accounts, so it's generally best to work with an advisor to potentially help ensure they would be appropriate for your situation.

Let them choose a few stocks to invest in or help them purchase fractional shares. Then, set up regular meetings to review their performance. You might be surprised by how engaged kids can be when it comes to investing in a company they know and like.

We know from our research that young people who have jobs are more likely to be better savers in the long run. So, make sure your child is saving a portion of every paycheck—and maybe even require them to help out with other expenses, as well. It's perfectly reasonable to expect kids to pay for gasoline in a car they drive or for trips to the movies with friends.

As teenagers become more independent and start driving themselves around, enrolling your child as an authorized user on one of your credit cards can be helpful. From a practical perspective, having a credit card to deal with emergencies like flat tires is always a smart idea. More to the point, your teen can learn to spend within their means—assuming you require them to pay back every dollar they charge.

This is also a good opportunity to discuss the importance of being responsible with credit. When you take responsibility to pay back borrowed money, lenders can trust you more when you need to make a big purchase in the future.

It's equally important to explain the basics, such as how credit cards differ from debit cards. And it's essential to warn kids about the dangers of high-interest debt and revolving credit. The more they know about debt, the more likely they are to manage it responsibly.

Once your kids have earned income, they can start contributing to an individual retirement account (IRA). We suggest a Roth IRA for most young savers. Roth IRAs are funded with after-tax dollars, but withdrawals in retirement can be entirely tax-free.¹ By funding these accounts early—when their income, and thus their tax rate, is still very low—kids could benefit from decades of potential compound growth and tax-free income in retirement.

Once your kids accept their first jobs after college, help them draw up a spending plan based on their salaries and estimated expenses. When you've never lived on your own, it's easy to underestimate common expenses, such as groceries and utilities. This is also a great time to learn the difference between fixed expenses (things you have to pay for each month) and discretionary expenses (things that are fun but are not necessary). There is always a new video game or a new pair of shoes to buy, but if spending on those things is going to make it impossible to pay rent or buy gas, they might find themselves short at the end of the month.

It's also a good idea to review their employer benefits with them to ensure they're taking full advantage of all available options, especially any matching contributions to employer-sponsored retirement accounts, such as 401(k)s. It's especially important for them to understand the value of those matching contributions.

Help your kids understand that time is their greatest ally when it comes to investing. The old saying "Time in the market is better than timing the market" can't be said enough to kids.

As for the investments themselves, there are literally thousands of low-cost index funds to choose from—which can be overwhelming to a novice. When in doubt, choosing a product that allocates and invests their money for them might be the best approach.

One such option is a target-date fund, whose asset allocation mix becomes more conservative as the target date approaches. Another option would be to consider a robo advisor that builds, monitors, and rebalances a diversified portfolio of exchange-traded funds on an investor's behalf.

You want your kids to be fully independent adults, but you might need to step in to help them from veering off course from time to time. After all, making poor financial decisions can be an expensive learning experience.

And if they have a question you can't answer, encourage them to reach out to trusted sources for financial help. You want them to get in the habit of asking for help if they need it—and not just from you. Even experienced professionals get help on tricky topics. But it's also critical for young adults to learn to distinguish real, trusted experts from media influencers who may not have their best interest in mind.

State governments are taking steps to support financial literacy in schools. As of 2024, 35 states require students to take a course in personal finance to graduate high school.² But there's still no substitute for leading by example. Showing your kids how you achieve your goals through budgeting, saving, and investing will potentially help give them confidence that they can do the same.