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Teaching Kids About Money: Giving Your Children a Leg Up

Teaching kids to handle money wisely can help set the stage for financial success in adulthood.

A father and son discuss money and finances.

Teaching kids about money—and the importance of earning, saving, and giving—can instill values that carry into adulthood and give your kids a head start in understanding important financial concepts.

To give your children a leg up in their financial thinking, Suzanne Mansell, Family Dynamics Consultant for Wells Fargo Private Bank, recommends introducing concepts when kids are young and reinforcing those concepts as they get older.

Here, she shares her top-five tips to help teach kids about money.

1. Explain the value of work

If you were raised in a family that struggled financially but are not facing those challenges as an adult, you may inadvertently overcompensate for your past experiences when you become a parent. First-generation wealthy parents often give their children everything they need while sheltering them from the experience of earning money, Mansell says. However, those kids miss out on learning about the value of hard work, not to mention how good it can feel knowing you earned your ability to purchase what you want.

While some parents choose to teach this lesson by tying a weekly allowance to everyday household responsibilities, another option is to provide your kids with a list of “extras”—those jobs they can do to earn extra money outside of their normal responsibilities of being a member of the household, such as mowing the lawn or gardening. As they get older, encourage them to get a part-time job to earn money directly or to volunteer for a favorite charity as part of their allowance requirements.

2. Teach them that money isn’t always about buying

Mansell recommends teaching children the jar method: One jar is for saving, one is for spending, and one is for giving. This system helps your child develop good saving habits, teaches the basics of budgeting, and highlights the importance of giving to those in need, Mansell says. (See “Helping Your Children Connect Wealth With Their Values” to learn more about how parents can help shape their children’s view of financial success.)

As children get older, keep reinforcing the same save/spend/give behaviors, but consider helping them move their money out of jars and into bank accounts. Explain how a bank operates, the difference between a checking and a savings account, and the concept of interest, either earned by a saver or paid by a borrower on a credit card or other loan.

3. Show them the reward of delayed gratification

The next time your child is eager to get the latest accessory or device but needs your help paying for it, encourage him or her to set a savings goal instead, Mansell says. When your child has enough cash to buy the items, he or she will experience a sense of accomplishment and know how to plan and work toward similar goals.

4. Let them make mistakes—and learn from them

Give your children a few financial responsibilities, such as control over certain expenses like after-school snacks. If they’re in their older teens, ask them to cover things like car payments, insurance, gas, or their phone bills. Avoid bailing them out as long as the long-term financial consequences are minor, such as spending all their money on trendy clothes. “You want them to make mistakes now, while they’re young, so it can be a learning opportunity,” Mansell says.

5. Get them comfortable with investing

As your kids are old enough to be thinking about college, you can introduce them to the stock market and investing as one way to help them reach larger financial goals. Make sure they understand that when you invest, there’s a chance you could lose your money, Mansell says. She recommends letting your children make actual or simulated investments, then track the performance over a certain amount of time. Although it’s important to understand that there is a risk of losing your money, parents can help choose the right level of risk when their kids’ money is at stake.

6. Adjust your approach as your children get older

By starting with small teachable moments, modeling sound money management, and increasing their financial responsibility over time, you can help your children learn strong skills that will ground them for more challenging money situations in adulthood.

To learn more about giving your kids a leg up on finances, Wells Fargo Bank has created a website that provides tools for families to help become financially savvy. The Hands on Banking® learning center offers resources including budgeting tips and improving financial literacy at each stage of life. Visit handsonbanking.org to learn more.

Michelle Crouch writes about consumer finance, parenting, and more from her home in Charlotte, North Carolina. Her work has appeared in Reader's Digest, Parents magazine, and The New York Times.

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Wells Fargo Wealth Planning Center, part of Wells Fargo Private Bank, provides wealth and financial planning services through Wells Fargo Bank, N.A., and its various affiliates and subsidiaries.

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