It’s not about how much money you have to pass on to your kids – it’s about education and conversation from a young age. We know that parents in their 30s and 40s lead busy lives. Just as it’s important to have money conversations with each other, teaching your children about money can help them make smart financial decisions now, and in the future. Just like with everything you teach them, there are key concepts and topics that create a foundation they can grow from.


Understanding the Basics

Research has shown that most of our money habits are developed while we’re children.1 There are a lot of ways that parents can influence those habits, both by addressing them directly and by simply including children in day-to-day financial decisions and processes. The following are money management principles that set everyone up to be successful:

  • Learning how to wait while saving to afford something they want
  • Understanding the concept of ‘future’
  • Dealing with delayed gratification and
  • Avoiding impulsive, irreversible decisions


Differentiating Needs and Wants

An effective way to help kids understand the difference between needs and wants is to make it tactical.

  1. Simply sitting down with them, grabbing a pen and paper, and having them write down different things they would like to spend money on, and then categorizing each item as a need or a want. This exercise can help them visualize the difference between the two and learn to make the distinctions in day-to-day life.
  2. Once you have a working list of things the child both needs and want, you can ask them to prioritize the list by how much they want each item and how much it costs and then develop a savings plan with some very concrete goals and timelines. Click HERE to read a blog post about setting goals and being optimized!


Opportunity Cost

Another concept that can be taught early on is opportunity cost. One of the best times to let kids see opportunity cost in action is at a store.

There are a few lessons that can be taught when kids are asking for a toy or piece of candy.

  1. First, it can be helpful to ask them whether that toy they desperately desire is a need or want.
  2. After that, explaining that if they get what they want right now, they will have to delay getting something else they want on their list is a prime example of opportunity cost.


The Necessity of Budgeting

Following the basics conversation, one of the first pieces in building a strong financial foundation is establishing a budget. In’s annual budgeting survey, 88% of respondents agreed that everyone needs a budget – but only 80% of respondents actually have one.

For adults, we love using cash flow to plan for income, expenses, and savings. For your kids, you can start by implementing a “save, spend, give” system. Kids are shown different uses of money rather than just spending. Setting up a save, spend, give system can be as simple as labeling three jars or envelopes to act as their piggy banks. Every time they receive money whether it be an allowance or a gift, there’s a specified percentage that goes to each of the three categories.

Once they’re old enough to have bank accounts, this same process can also be followed. Typically, banks can open accounts for minors once they have reached the age of thirteen if a parent or legal guardian signs as a co-owner of the account.

Teaching kids about how to create a budget and the importance of budgeting will not only give them a head start, but also helps them develop a habit they’ll hopefully have for the rest of their life.


From Budgeting to Saving… And Understanding Interest!

Parents in their 30s and 40s are faced with decisions about where to stash their extra cash. Should they save more, spend more, pay more towards debt? To show their children how powerful it can be to save, rewarding them for saving can help incentivize good budgeting habits. One way to do this is by giving them a small “bonus” every time they put money towards their savings account. Another way to educate them about interest is to ask them if they would rather have $1 million or a penny that doubles every day for one month. Chances are, they will select the $1 million. Now you get to show them the power of compound interest. By taking that penny and doubling it every day for thirty days, the ending balance ends up being north of $5 million.2

One way to show the negative side of interest may be for the parent to act as their kid’s lender if they don’t have enough money for something. By charging them a little interest, they can begin to see that it’s more expensive to buy something if they don’t have the money for it rather than waiting until they have enough saved.

interest calculation


Creating Commitment with Investing

There are a few ways to get kids involved with investing. A fun way to encourage them to learn about investing is by letting them play the stock market game. There are many different websites and apps that can be used, but kids are given the ability to select stocks in a hypothetical account and can manage their own portfolio. The SIFMA Foundation has a great version that you can find at

A real-world option is to open a Uniform Gifts to Minors Act or Uniform Transfers to Minors Act (UGMA/UTMA) account. These are custodial accounts that can be opened in a minor’s name. This allows both kids and parents to save money and invest while still giving parents control over the account until the child reaches majority age. Both types of accounts can be opened at a bank or a brokerage firm.


The Takeaway

Teaching kids about money is like teaching anything, it takes time and patience. But the knowledge and lessons they learn will stick with them throughout their whole life.

  1. Financial Capability of Children, Young People and their Parents in the UK 2016. The Money Advice Service. March, 2017.
  2. Calculation by Seven Group.

Katerina Logrono is a Paraplanner at Willow Planning Group, LLC. She is primarily responsible for supporting you in reaching your personal financial goals. Katerina loves exploring new places while helping you live your adventure too!


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