Financial Literacy for Kids: Teaching Money Management Early

Financial confidence is one of the most powerful gifts you can give your child – and the earlier you can give them that gift, the better. With your guidance, your youngster’s first interactions with money can be the foundation for lifelong financial health that can carry them through all phases of their lives.

Why teach financial literacy so young?

By seven, kids can form habits and attitudes about money that carry into adulthood. Waiting until they’re teens to introduce financial literacy makes it that much harder to undo misconceptions or risky behavior. Also, it’s not just about forming good habits; early financial education correlates with better savings, lower debt and stronger credit profiles later in life.

Conversations about money don’t have to be complicated. Using concrete, visual examples when teaching about real-life financial experiences let kids learn from small mistakes instead of costly ones later in life.

Try these easy strategies for parents to raise financially smart elementary and middle schoolers, covering the basics of saving, spending, investing and debt.

Introduce an allowance or ‘earn it’ system

Rather than handing out money unpredictably, tie allowance to tasks beyond ordinary family duties. For instance, making their bed might be a standard expected task, but helping with yard work, organizing the garage or washing the car could be tied to earning. It establishes the principle that money is earned through effort, not just given out when asked for. 

Make it visual: Save, spend, give

Set up three jars, envelopes or other containers and help your child divide their allowance or money gifts among them.

• Spend: This jar is for immediate wants like a book or ice cream cone. It teaches making choices within a budget and gives a visual representation of the cost of goods.
• Save: This jar is for saving towards a long-term goal. The key is to make the goal visible and tangible – "saving for the future" means nothing. However, "saving for a drone" does. This teaches patience and delayed gratification.
• Give: This jar is for charity or a gift for someone else. It fosters empathy and the idea of using money to help others.

Pro-tip: For every dollar your child puts in a save jar, consider matching a percent or a set amount like 10 or 25 cents. This helps visually demonstrate the power of interest and employer matches, making savings even more appealing.

Introduce basic banking and investing concepts

When your child gets to between the ages of 10-12, be sure to introduce basic banking and investing principles. Make the difference clear between saving (short-term goals) and investing (long-term growth with risk). Some ways to introduce these concepts includes:

• Visit a local bank branch to open a savings account.
• Consider opening a custodial brokerage or investment account. Let your child choose a low-risk stock or fractional share of a company they know. 
• Review performance together and talk about risk, growth and time.

Let them make safe mistakes

It's inevitable: Your child will use their entire "spend" jar or allowance on a cheap toy that breaks within an hour. Make this a teaching moment, not an "I told you so."

• Discuss the purchase: "How do you feel about that purchase now? Was it worth the amount of time you worked to earn that money?"
• Introduce value: Use simple comparisons to teach the concept of value. Is a $10 toy that broke in a day a better value than a $10 book they will read all week? This is the core of smart consumerism.
• The zero-bailout rule: Once a child spends their money, they wait until the next allowance cycle to earn or save more. Immediately replacing the broken toy or lending them money removes the consequence, and the lesson learned.
  
   

Talk about money openly and often

Don’t make money a taboo subject. Making it normal to talk about income, cost, credit and financial goals can demystify finances and make them more comfortable to talk about as they age.

• Explain where money comes from: Help them understand that money is earned through work, not an endless supply from parents or an ATM.
• Discuss household expenses: Briefly explain that money pays for things like rent/mortgage, food, and bills. This gives them a sense of real-world costs.
• Share your own financial habits: Without oversharing, talk about your own saving goals or budgeting decisions.
• Explain credit and debt: Just like an ATM, a credit card isn’t a magic payment device. Explain how borrowing works; it must be repaid with interest, and missing payments can lead to trouble.