- Research shows that most money-related habits are established by age 9, so it’s key to start teaching early.
- Counterintuitively, letting your kids spend money and fail with money now will help later.
- Letting kids spend is an opportunity to teach the value of saving and delayed gratification.
- Read more Personal Finance Insider stories.
As adults and caregivers, we often look for ways to help our children “do better” than we do, and for me as a parent, teaching my child how to manage money is definitely at the top of my list, as I’m sure. . it is for many
Teaching children to manage money responsibly at a young age will develop positive habits and relationships with money that can lead to much better adult decisions as risk increases.
When should I start teaching my children about money?
In her book, “Make Your Child a Money Genius (Even If They’re Not),” author Beth Kobliner cited research showing that children as young as 3 can begin to understand the basics of money. I have a 2-year-old at home, and it’s clear that even at his young age he understands some of the most basic ideas, like exchanging money to get what we want at the store and not buying things unless they’re on our “list.” .
Children first learn about the world through observation. What they see you, other adults and older children doing around them is what they will try to replicate. My son is always watching and listening to what we do, which means we are constantly presented with opportunities to provide money lessons.
Money habits are established around the ages of 7 to 9.
That’s right, people! Many of the habits we carry into adulthood, particularly around money, are established by age 7, according to research by Dr. David Whitebread and Dr. Sue Bingham. Things like planning ahead, budgeting, delayed gratification, and returning borrowed items are habits we develop in childhood and then carry into our adult lives.
Fortunately, a 2014 study from Brown University gives us a slightly larger window by noting that other habits, like self-responsibility, don’t develop until age 9. We know that habits like self-responsibility and the ability to make ourselves take action, even if we’re not particularly excited about the task, are important to learn when it comes to managing money.
How do we foster positive money habits in our children?
You can be a big part of forming the money habit for children in your family, community, or workplace. It is less about providing formal lessons and more about creating opportunities for children to practice and learn with money. You can start as soon as you are confident that they will not put it in their mouths. Here are some things you can implement.
1. Practice managing small sums of money
Let your child help you count the cash to pay the bill at a restaurant, then hand over the money. Let your kids take your money to the store and pay for a purchase. You, of course, can help them think about their purchase and what they can afford, but let them handle the money and make the purchase decision.
2. Consider giving an allowance
This has to be one of the most divisive issues for caregivers when it comes to their children and money. Whatever your approach to receiving or earning an allowance, the purpose of an allowance is to give your child the opportunity to manage small amounts of money on her own. They need to have decision-making power with this money and the opportunity to fail. Failing now with small sums of money means they learn lessons early that many of us don’t learn until adulthood.
3. Develop the desire to save
This begins by first encouraging your child to spend. It seems counterintuitive, but if you dictate to kids to save, particularly for long-term goals like cars, college, and retirement, they’ll see it as having their money confiscated.
Teaching kids to want to save starts with spending. Encourage them to identify wants and let them buy them with their own money. When they inevitably start to identify wants that cost more than they have, jump in and show them how to save for the goal. Practice “delayed gratification” for something small now, to get something better later.
Gradually explore things that are more expensive and require longer savings periods. Suggest dividing their money between spending now and saving for larger purchases they want. They will build a positive relationship with saving and a healthy understanding of spending.
4. Talk about options when your kids want to spend their money
But don’t stop them from buying unless it violates family rules or is a safety issue. “Opportunity cost” can be explained by identifying all the things your child could do with the money he’s about to spend and making sure he knows that saying yes to one thing means saying no to everything else. After that, their job is done and they should be allowed to buy the junk toys that will break in a day or the candy bar that will be forgotten in an hour. They will learn that waiting and being patient can mean better results later on.
Developing positive habits comes down to you being a positive role model, demonstrating good money habits, having age-appropriate money conversations at home, and providing opportunities to practice money management in real life and through play. Practice these techniques and you’ll be well on your way to shaping a future responsible money manager.