How To Raise Financially Responsible Children

Raising kids comes with many goals – raising people who are kind, who are responsible, who are honest and who want to do good in the world. One thing many people forget to think about until kids are much older is raising children who are financially responsible.

A lot of times, kids don’t start learning how to manage money until they’re in college or even graduated and earning their first real paycheck. But why should we wait that long? Aren’t there lessons we can start to teach kids when they’re younger to create good habits that will last a lifetime?

As it turns out, there absolutely are and these lessons can start when your child is still very young. Every family has different methods of teaching their kids these important skills, but here are just a few ideas to get started with:

For young children –

• Chores for an allowance – teach your kids the value of hard work and earning a dollar by having them complete work around the house to earn an allowance. Then you can help them learn to save for something they’ve been wanting, or simply putting some of their allowance away in a savings account and watching the balance grow.
• The bank of mom/dad – allow your children to grow their allowance money by investing it with mom and dad and earning a certain predetermined rate of return. This not only starts to teach them the basics of investing but can also teach them the wonders of compound interest. To learn more about this method, watch our video here.

For Teenagers –

• First job – lots of kids get their first real jobs when they’re teenagers. From golf caddies to coffee baristas, to cashiers at large retailers, this important step gives children some independence and also gives them experience working for another person or company. Help your children understand money management by explaining their first paystubs to them, the gross amount they get paid, the taxes that are taken out, and the net amount they end up with.
• Investing – Now that your son or daughter is earning a paycheck, he/she can start investing that money! Help set up an investment account alongside them and explain the basics of investing, from stocks to bonds, and understanding risk and interest rates. They can also learn the different accounts available to them, like retirement accounts such as a Roth IRA, to investment accounts like an UTMA and even college savings plans. This will help them get started with this important life skill and they’ll learn about the different savings buckets and goals that they can work towards.

For the Post Grads –

• First jobs - Whether your child just graduated high school or college, the next step is likely getting their first full time job. With a full time job comes a bigger paycheck then they’ve had before, and learning to manage that money from the get go is imperative. Start by explaining 401(k)s to your children and helping them determine a portion of their salary to allocate to it. Then discuss the insurance options available to them ranging from health insurance to disability and life.

Starting the conversation on financial literacy when your children are young is important. Over time, all of the little lessons they’ve learned will add up and help create financially responsible adults who value saving, investing and achieving their goals even as they evolve throughout their lifetime.