Here's How to Foster Good Financial Habits in Your Children

Your kids are learning money habits from you, whether you realize it not, so try to set a good example and find ways to directly involve them in your financial life.

Parents and a small child brush their teeth together.
(Image credit: Getty Images)

One of the best ways parents can secure their children's future is to teach good money habits from a young age. By helping them understand the value of money, the value of saving and the importance of eventually achieving financial independence, parents can properly prepare their children to take on their finances in a proactive and responsible manner.

Since kids are naturally eager to learn and emulate their parents, you can take advantage of that to educate them about money and personal finance. In time, doing this will not only benefit our children individually but will also help to change the financial trajectory for their generation.

By including kids in the larger conversation about family financing, they can actively learn while also being supported and having access to an expert who can answer their questions as they arise.

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Capitalizing on Kids’ Curiosity

It is natural for your kids and grandkids to wonder about money. They don't always understand how it works, where it comes from, and the relationship between work, money and gratification.

Parents can help kids understand how money works at any age by making it applicable to their own lives. They can ask their kids what kinds of things they want to save up for and use that as motivation to encourage good saving and spending habits. In addition, they can tell their kids how they saved up for a purchase themselves, such as a car or a vacation.

After all, when parents keep money matters private, they do their children a disservice. Kids want to learn about and understand the world around them, and by teaching them about money early on in terms they understand, parents can set their children up for success as they take on new responsibilities.

Educate Kids About Short Vs. Long-Term Goals

Teaching kids about money must start with the basics of saving, spending and giving. One approach to this is to help kids understand the difference between short- and long-term goals in terms that are relevant to them. For example, parents can teach their kids how they use investing to work toward long-term goals, such as retirement or a home, and saving to help afford short-term or current goals. Then, kids can emulate this in their own lives and practice saving for their own purchases.

The No. 1 money habit children pick up from their parents is spending, which affords an opportunity to teach them about budgeting for needs (such as food, books and school trips) and wants (such as toys and video games). At the same time, parents can also teach kids to budget wisely and live below their means.

Parents can encourage their kids to think critically about their finances and foster a healthy mindset about money, which can counteract the often-consumerist mentality that is perpetuated in popular culture. For example, you can implement a reoccurring chore list. In exchange for help around the house, offer a monetary incentive. This helps teach your children a strong work ethic and provides them with the chance to learn how to manage money.

As these kids grow up and take on new responsibilities, their financial goals will grow and change. Helping them adapt and learn about making critical financial decisions will empower them and help them create a secure foundation for their future.

Educate Children about Compounding

Children may find it hard to understand abstract concepts, such as saving now for later, the effect of compounding and delayed gratification. It is a skill that takes time and patience to master, and parents should be willing to help their kids along this journey.

For example, if kids want something expensive, such as a $200 toy, parents can teach them about saving a portion of their allowance on the way to achieve this goal. They can also teach them about the effects of compounding in plain language to help them understand the benefits of saving now for a greater return later. One way to do that could be providing the opportunity to accumulate more money with a healthy monthly interest rate. Offering between five 5% to ten percent10% interest to children’s savings will help spark their interest to continue saving.

This approach lets children experience how disciplined saving allows them to achieve goals that weren’t possible before. Teaching kids to resist the impulse to spend will help them understand the value money holds, and this skill can later translate to healthy spending and saving habits, which could help them avoid accumulating debt as they get older.

Be an Open Book: Make the Learning Process a Family Affair

Kids will learn far more from you than you can teach. How you approach money, your attitude and habits will rub off on them in one way or another. The first step you should take as a parent is to turn yourself into a resource for your children. You can start by cultivating healthy money habits so that your children can emulate you. Showing kids how money works is effective. Let them observe you making purchases with cash. If you pay with a credit or debit card, explain to your kids that you are using your own money to make purchases and show them receipts with the prices.

At the same time, create an environment where they can ask you questions about money from a young age and involve them in making family decisions about money, such as investing, buying groceries and so on. To start teaching your kids about investing in the stock market start with the basics of risk versus reward. If you own stocks, you can also explain why you decided to invest in those companies.

Introduce Your Kids to Your Financial Adviser

Starting a conversation about money within the home at a young age is important, but it can also be helpful to introduce your children to your family’s financial adviser and give them the opportunity to ask an expert their hard-hitting money questions.

Doing this encourages kids to take an active role in their financial lives and will help them build a relationship with someone who will be there to guide their finances as they get older and begin to branch out.

By making managing finances something the entire family is part of, your children will see and experience how money plays a role in their lives and will be better prepared to handle money when they become independent adults.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Andrew Rosen, CFP®, CEP
President, Partner and Financial Adviser, Diversified, LLC

In March 2010, Andrew Rosen joined Diversified, bringing with him nine years of financial industry experience.  As a financial planner, Andrew forges lifelong relationships with clients, coaching them through all stages of life. He has obtained his Series 6, 7 and 63, along with property/casualty and health/life insurance licenses.