Teaching kids about money: Financial lessons for every age

Have you considered how you’ll teach your kids about money?

Sharing financial knowledge with your children is a great way to set them up for success later in life. Through conversations, games and everyday situations, you can help them develop practical money skills and a better understanding of personal finance.

What you'll learn:

• Teaching kids about money now can set them up for financial success later in life.
• You can teach young children—even preschoolers—about money by providing age-appropriate financial lessons.
• As your children age, you can give older kids and teenagers financial lessons by providing more applicable advice—and even help them start establishing credit.
• Khan Academy provides free online financial literacy courses that break down complex concepts about, budgeting, saving, debt, retirement and more.

Money plays a big part in all of our lives, and it’s important to start teaching young children about financial literacy early. With your guidance, they can learn to make smart decisions now and build a strong financial future tomorrow. 

When teaching young children about money, start with the basics. You can always build on those financial lessons as they mature.

Whether you’re a new parent or you’re raising a teenager, there are lessons for kids of every age. So, consider these tips when talking to your kids about money.

This doesn’t need to be an advanced course in economics. Kids just need to know what’s going on when you hand someone $20. Knowing that money can be exchanged for goods and services and that its value is backed by the government is a great start.

Your kids might notice that you use a check to pay the mortgage, a debit card for the utilities, cash for a bottle of shampoo and a credit card for a new lawn mower. This is a good time to talk with your child to make sure they understand how each works.

Let your kid take a look at each form of money you use and share when and why you might use one instead of another. While there are many ways to pay in today’s digital age, you might start with these four:

• Cash: Paper and coin currencies are the simplest forms of money and the ones your kid is likely already familiar with. Cash can also be a great way to introduce budgeting concepts like setting aside a $20 bill as spending money for the week or adding coins to a piggy bank.
• Checks: The next time you pull out your checkbook to write a check, use this as a teaching moment. You can explain that this piece of paper tells the bank it’s OK to pay someone on your behalf with money from your account.
• Debit cards: Need help explaining how a debit card works? Try comparing it with cash and checks. A debit card can be introduced as an alternative to carrying around cash. And it’s like a check because the money is deducted directly from your bank account.
• Credit cards: When teaching your kids about credit, real examples help. For instance, if your child wants a piece of candy while you’re checking out at the grocery store, you can offer to buy it for them as long as they pay you back from their allowance. You can also point out when you are using a credit card, whether you’re buying new furniture or filling up at the pump. Later, as your child gets older, you can introduce concepts like interest rates and credit scores.

Once your kid understands these common forms of money, you should have an easier time explaining concepts like mobile wallets and the differences between credit cards and debit cards.

Once your child understands what money is, you can use this foundational knowledge to connect the concepts of money and work.

Start with the simple concept that people go to work in exchange for an income. You can then explain how you receive a paycheck each pay period because you performed the duties of your job.

Giving your kid an allowance is another way to teach kids about work and money.

For example, you can explain that you pay them an allowance once a week for doing certain chores. In exchange for their “work” (the chores), they receive a “paycheck” (their allowance).

Want to reinforce the rewards of hard work? Consider providing opportunities to earn more money in exchange for additional chores—like an extra $5 for washing the car on a weekend.

Responsible spending includes knowing the difference between wants and needs. So, you may want to begin teaching your kid about this distinction at a young age.

You can start by helping your child decide what they need and which experiences and purchases they value enough to spend on their wants. You can use your own wants and needs as a good example, too.

Our financial goals determine how much we save and why. Are you setting money aside for retirement? Or shoring up your emergency fund for unexpected car maintenance? You can use examples from your life to illustrate the importance of saving money.

Want to help your kids set their own financial goals? A fun, easy way is to have them divide an allowance into three jars: saving, spending and sharing.

Have them decide what they want to accomplish with each of these jars. They may want enough money in their spending jar to purchase a piece of candy every week, while also saving enough to purchase a new toy in a couple of months. Meanwhile, a sharing jar can be used to introduce concepts like generosity and giving back.

Want to reinforce the importance of giving back? Consider what causes your child cares about and help them identify a nonprofit to support. Saving up funds to contribute is a great way to teach generosity, while introducing concepts like budgeting.

You could even pair volunteer experiences with a monetary donation. This approach may help illustrate the real-life impact of donating to a cause, and the time spent volunteering may make it more memorable.

Keep in mind that there’s often an age minimum for volunteer opportunities, so look for age-appropriate activities, and check with the volunteer coordinator before bringing your child along. Learn more about how to teach kids about giving.

This is where earning, spending, saving and sharing all come together. Sticking to a budget and learning the costs of things will help kids better understand money management.

There are fun budgeting games and resources for students online, including ones available for phones and tablets, to show kids good budgeting techniques and explain other financial practices. You can also teach your child how your family budgets and spends money on different things. For example, you could include them when planning for the week’s meals or purchasing soccer gear.

In a digital world, your kids might still play the occasional board game—but they’re probably more interested in electronic games. And thanks to advances in technology, you can teach kids about money with mobile, tablet and desktop apps that put a modern spin on the games you once loved.

These apps can help kids learn about money and how it works, making your conversations about money more relevant. And some of them make real-life lessons easier to manage, too, like assigning chores to your kids and paying them with real or virtual money right from your phone.

You can help young kids understand the importance of delaying gratification from an early age. This can be accomplished by giving kids their own money in exchange for age-appropriate chores.

Once they’ve earned enough money to buy an item they like, teach them to wait for a certain period of time before making the purchase. This gives them time to decide if it’s an item they really want. If they forget about it, the money can be put toward something else.

Your child’s appetite and capacity for advanced lessons in money will likely increase with each year of their life. By the time they reach their teenage years, you may want to encourage them to take on additional responsibilities and learn more about personal finance.

As you expand on concepts they already understand, consider taking a deep dive into these money management skills to teach your teen.

An after-school or summer job can help put the value of money into perspective for your teenager. When they receive their first paycheck, they’ll be excited to gain some spending money—but it’s also a lesson about the value and reward of hard work.

A part-time job can also help teens learn important life skills like how to write a resume and cover letter, build an online job profile, fill out an application, and prepare for an interview.

If holding a traditional after-school job isn’t a good option for your teen, think outside the box. You can help them explore different ways to earn money or help them find side hustles that may interest them.

As your teen gets older, it’s easier for them to understand the real-life consequences of unexpected expenses.

You can use day-to-day situations that apply to their lives as teachable moments about the importance of saving for emergencies.

Work with your teen to think through potential scenarios, like car issues or a cracked cellphone screen, and help them decide on a savings goal. Even if they never need this money, working toward a financial goal is a great way to make saving a habit and not just an afterthought.

If your teen doesn’t have a checking or savings account, this can be a good time to help them open one. Your bank may even offer accounts designed specifically for teens.

Need more help teaching your teen to save? Try explaining how saving makes future fun possible. You can use short-term examples like saving for weekend activities. Or longer-term examples like saving for a new phone or car.

And, believe it or not, this can also be a good time to teach children about retirement. Once your teen is earning money, you can open a tax-advantaged retirement account in their name. You’ll be giving your kid a head start and the benefit of extra years of compounding interest.

You can help your income-earning teen set up automatic transfers from their checking account to a savings account on a weekly or monthly basis.

Want to help your teen avoid overdrafts and maxed-out cards? Teach them the importance of signing in to their online bank account to check their balance and view any pending transactions.

Your teen may prefer apps to printed statements and checkbooks, and electronic transfers to handwritten checks. Work with them to create money habits that fit their lifestyle. You can help them set up email or text alerts that send regular balance notices so they’re always in the know.

Some banks are even developing new technology like chatbots and AI. For example, Eno, your Capital One assistant, helps keep your accounts more secure and helps you track your spending by monitoring your credit card account and sending you useful insights when it spots free trials, recurring charges and more.

Credit can seem like a mysterious topic to teenagers. But you can start by explaining the importance of a good credit score as an adult. And help your teen understand how behaviors like on-time payments can help them build a strong credit score over time.

Want to help your teen build their own credit history? Adding them to your account as an authorized user and modeling responsible use is a great place to start, but pay attention to the age limits set by credit card issuers.

Adding an authorized user to your Capital One account can help you earn more rewards and keep track of spending all on one account, at no additional cost. To get them set up, all you’ll need is their Social Security number and date of birth. You will also have the option to choose their level of access. They may be eligible to create a digital profile, which allows them to manage their account online. Once they’re added, they’ll be sent a card to start using right away.

To help your teen check and monitor their credit, try CreditWise from Capital One—it’s free, and it won’t hurt their credit.

Getting a credit card for a teenager is something you should consider carefully, but building a credit history can be helpful to their financial future, depending on their age. If your teen starts building credit with responsible use of their card, they may have a longer credit history than some of their peers, which could give them access to the larger lines of credit needed to make big purchases in the future.

Learn more about teens and credit cards.

On-time payments can help your teen improve their credit score and avoid late fees and potential interest rate hikes. You can show them how to sign up for automatic payments or how to sign up for reminder emails. This way, they can keep their payments up to date.

Want to help your teen build and follow a budget? Start by reinforcing how a budget can help them achieve their goals and make better financial decisions.

Ask them to think about how much income they have, how they’ve been spending their money and what they‘d like to be able to purchase or save for next. Then, show them how expenses can be categorized based on common purchases like dining out, entertainment, clothes and hobbies.

You can write out a budget on paper, but popular budgeting sites have visualization tools that can make this more fun and easier for your teen to understand.

In a digital age, your teen may prefer listening to a podcast to improve their financial literacy rather than reading a book. Look around for different finance-related podcasts and encourage them to tune in while they’re working out, going on a long trip or taking a walk.

You may be giving your teenager more responsibility. But chances are you’re still paying for some, or all, of their major expenses. Maybe they’re earning their own money, but if they’re living under your roof, they’re not fully in charge of their financial lives.

If your child experiences a financial setback when they’re young, it can be an opportunity for them to learn. And once they’re on their own, they may be better prepared to take responsibility for their financial life.

Think your kid has the financial skills they’ll need as an adult? Need more advice on explaining real-world issues to your teen? Teaching kids about money now can set them up for financial responsibility once they’re in the real world.

Learn more about parenting and money.