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November 3, 2023
Of the many lessons parents need to teach their children, one of the most difficult concepts to impress upon children is the importance of financial literacy. While most American parents have no trouble talking to their children about religion, politics, or dating advice—as much as children probably groan when their parents bring up that last one—when it comes to money, nearly half of all American parents say they don’t know how to discuss money in a way they think their children will understand.
However, there are several ways you as a parent can teach your children good money habits. It’s one thing to sit your child down and explain a topic to them; it’s another to have them reach the conclusions you want through their own observation and experience. Consider these options to help prepare your children for a future handling their own finances:
Make Them Earn Their Allowance. This is the easiest and most obvious one, but it’s vital for children to understand the relationship between the amount of work they’ve put into earning their allowance and the cost of the things they buy with it. You can set dollar amounts for regular tasks such as washing the dishes or organizing their bedroom, with longer tasks like mowing the lawn being worth extra money.
Let Them Spend. While it is tempting to stress upon your children the importance of proper budgeting and fiscal responsibility, doing so without allowing them to reap the rewards will leave them without the motivation to practice good saving habits. It is important that your child develops a positive relationship with money and recognizes that saving allows them to purchase the things they want. Allow your child to buy something small they really want—a toy, candy bar, or comic book, for example—so they can feel the satisfaction of spending the money they earn.
Encourage Them to Save. Every parent knows what it’s like to be inundated with requests for video games, toys, or other expensive purchases. Sit down with your child and help them calculate how long it will take with their current allowance to save up for the item. Ask them to consider how much of their allowance they spend each week and how much less they’d be willing to spend if it means being able to buy the item for themselves. For particularly pricey items, you could consider contributing to help buy the item, promising that you will pay for half of the purchase if your child follows through with saving up for their half.
Open a Bank Account. Many banks, New Tripoli Bank included, offer starter checking account options to get children started with handling their own money. You should consider opening an account for your child even before they’re hired for their first job. Bank accounts can help a child see the gradual process of building up a bank balance and learn how to track their spending over time.
Introduce Investing. Whenever your child earns money, whether through allowance, birthday gifts, or even odd jobs like babysitting, have them set a little aside each month into a long-term savings or investment account. When your child is old enough to buy a car or start college, hand over control of the account to them, showing them the benefits of long-term financial planning.
Practice What You Teach. As previously stated, children learn by observing their parents. Don’t be afraid to let your children sit in while you’re going over your monthly budget and answer any questions they might have about the process. Be earnest with your children about your family’s finances; if you’re experiencing financial hardship, you can teach them how to stick to a budget and cut back on nonessentials. When your children start handling their own finances, they will be better equipped to respond to these same issues.
There is no one surefire way to instill good money habits in your children, which is why it’s important to take a wholistic approach to teaching financial literacy to your children. Whatever methods you choose, it’s important that a child’s experience with money while growing up mirrors what they will experience in the real world. Earning money over time, understanding the relationship between time and cost, opening and maintaining a checking account, and stressing the importance of saving and investing ,are all principles necessary for a child to develop a healthy relationship with money.
Michele Hunsicker is an Executive Vice President and Chief Financial Officer for New Tripoli Bank. She has been part of the Bank's finance department for over twenty years and has worked in banking for over thirty-five. Michele serves on the board of the Northern Lehigh Food Bank and regularly volunteers with her local church.