How to Teach Your Child Financial Literacy
Kids, grandkids, nieces or nephews, or even your friend's kids, teaching the young people in your life about money is important. After all, you want them to make good decisions when they're older, so helping them learn early can help set them up for financial success for life. Kids need to understand that money is not limitless and everything costs something. Let them in on the conversation!
Why is Financial Literacy Important for Kids
It's no secret that having good money habits sets you up for success, but it's especially important to start those habits early. Young adults and teens who have not learned money management but need to make major purchases (like buying a car or taking out student loans) are at high risk of making decisions that can affect them negatively, sometimes for the rest of their lives. Learning early can help them make better decisions and lead to a happier and more productive life. They will also be better prepared to make good financial decisions, better navigate unavoidable emergencies, and take advantage of compound interest so they can save for their future.
What Age do Kids Understand the Value of Money
It might be surprising, but kids can grasp basic money concepts by the time they're three years old. It's important to begin your child's money education early so they can develop and keep good habits and be ready to enter the real world as adults. They say practice makes perfect, and that's also true when it comes to learning about how to manage money.
10 Ideas to Teach Your Child Financial Literacy
- Use a three-category savings strategy: Encourage your kids to do more than just save their allowance. Help them divide it into three groups, either in separate jars or in one account with the balances tracked on a piece of paper:
- For their future and emergencies (for now, that might be a flat tire on their bike)
- Spending for wants like toys or a video game
- Donations to charity
- Open a savings account: Take a trip to the bank and help your children open their first savings account. This will give them the opportunity to see how banking works, why having money doesn't always mean a stack of physical cash, and the importance of earning interest. WaFd Bank's Youth Savings account has no minimum or monthly balance fee for minors and requires only $10 to open and earn interest. After you open their savings account with them, make sure you explain that part or all of the money they get will go into that account, whether that's from allowance, a job, or birthday cash. If you want them to have their own debit card, consider Greenlight, which comes with your WaFd checking account.
- Play games: Think of the classics like Monopoly or Life, or if they're a bit younger use pretend play to introduce earning, saving, and spending concepts at a make-believe store, restaurant or doctor office and pay for services like a checkup for their stuffed animals and other toys.
- Turn a grocery store visit into a lesson: There's nothing like hands-on experience! Let your kids know how much money you have to spend on groceries and share your itemized list with them. Ask them to help you total up the cost of the items as you place them in your cart.
- Demonstrate the power of coupons and sales: Bring a couple coupons with you to the store or check sale tags on the shelves and show how percentages and buy one-get-one's can help you save.
- Comparison shop together: In need of a new dishwasher, washing machine, dining room set or other big purchase? Make your kids part of the process! Let them know what you're looking for, talk through the importance of shopping around, and ask them to help you search. Even regular grocery shopping can be a lesson in comparison shopping. You can compare price tags between similar products like name brand and generic.
- Work, work, work: If your kids are too young to work outside the house, then pay them to do some jobs at home. This will help to enforce the idea of how money is earned and the value of hard work.
- Set a budget together: This doesn't have to be anything complicated—maybe they earn $5 a week for their allowance. What can they budget for themselves to spend every week and what will they set aside to save up for something bigger? You can also go over your own household budget when you get paid so they can get a real life lesson in money management (if you're working on setting up a budget for yourself, check out our article on Getting Your Finances on Track). This is a great learning opportunity for the older kids in your life!
- Track your spending: Not only can this be a good lesson for your kids, it can also help you see where you might be able to cut back if you're trying to save more. WaFd Bank's mobile app helps you do this automatically by categorizing your transactions so you can easily see exactly where your money is going. Teach your kids to use this free tool to help them keep an eye on their own spending when the time comes for them to have their own accounts.
- Save at School: Our Save at School program helps elementary school students learn the habit of thrift by making modest but regular deposits during our on-site "bank days." We also match each initial $5 opening deposit! Check with your school to see if they participate, and feel free to email us at info@wafd.com to ask about launching a Save at School program in your area.
Keep the conversation going: Starting with the basics is necessary, but as the kids in your life grow, so should conversations about money. When they get their first job, take the time to discuss retirement and investment options so they can set themselves up for success. Remember, you don't need to be an expert on everything (that's where we come in). Talking about money can be tough, but it doesn't have to be. When money is managed well, it can lead to independence, homeownership, and having the lifestyle they want rather than the one they have to live. It's important to make sure they know about pitfalls, but the main thing is to get them excited about what's possible.
The Importance of Giving Back
After your child has deposited a sizeable amount of money in their account, then you may want to consider asking them if they'd like to donate some of it towards their favorite charity or cause. For example, you could take them to a grocery store and buy $10 in food items to donate to the local food bank. Or purchase some school supplies that will be used by kids who can't otherwise afford them. It feels good to give back.
While the actual amount of money that's given may be small, the habit of choosing an issue impacting their community is hugely important. Doing this also helps them understand that the way that they live isn't necessarily what everyone has.
WaFd Bank is Here to Help
No question is too small, and with WaFd Bank, you also have access to tools and services to help you manage your finances and get the most from your money, like Greenlight. You'll get Greenlight for free* with your accounts at WaFd Bank, which helps to empower parents to raise financially smart kids. They can manage their own money with the debit card that comes with Greenlight when you sign up while staying safe and connected to family. Plus parents can send funds, set flexible controls, and more. Visit us at your neighborhood branch, give us a call at 800-324-9375, or check out our kid and teen savings accounts.
*Subject to minimum balance requirements and identity verification. Offer subject to change at any time. WaFd Bank customers are eligible for the Greenlight SELECT plan at no cost when they connect their WaFd Bank account as the Greenlight funding source for the entirety of the promotion. Upgrades will result in additional fees. Upon termination of promotion, customers will be responsible for associated monthly fees. See terms for details. Offer ends 02/03/2027. The Greenlight® prepaid card is issued by Community Federal Savings Bank, member FDIC, pursuant to license by Mastercard International.
Content is provided for general informational purposes only and does not constitute legal, tax, financial, or business advice. Consult a qualified legal professional or specialist regarding your specific needs and circumstances.
