Teaching Your Kids About Personal Finance

How old should your children be when you start teaching them about the basics of money? And when you do start, how do you actually teach them? These questions often go unanswered in many households, and there's no firm deadline for when a child should learn about personal financial management. But in some cases, parents might be surprised how much their kids can understand, as well as what they should be learning.

For example, according to author and researcher Beth Kobliner, children as young as 3 years old  are often able to understand basic economic concepts like exchange and value. Between the ages of 3 and 7, kids will also begin to apply those ideas to the development of their self-control skills, or why it's important to delay gratification.

In an interview with PBS Newshour, Kobliner advocated for a popular way to provide kids with money management experience early on: an allowance. But she and other experts on the subject caution that parents need to handle allowances carefully. Ideally, allowances should be given in exchange for doing work like chores, and parents should demonstrate how to manage those earnings at first. 

The 'three jar' method

One common route to a responsible childhood allowance involves grouping the money into three categories: spending, saving and sharing. If your child receives $3 per month for completing his or her chores, let them divide it among the jars as they see fit, but explain that their choices have consequences, too. If they want to spend all $3 at once on candy, for example, that means no more candy until next month. Instead, they could deposit some in the savings jar, or use the sharing jar to buy a treat for someone else.

Starting out small is important at a young age, as is using cash rather than an app or debit card. That instills kids with a better understanding that money is a finite resource. As they get older, allowances should increase, along with additional responsibilities like buying some clothes or movie tickets with friends. Many experts also recommended opening a joint savings account for your child to introduce them to more adult banking concepts.

Acting as a resource for money topics

All throughout childhood, parents should act as a reliable resource for their kids when they have questions about just about anything, including money. Finance columnist Ron Lieber recommended taking opportunities to teach children about more advanced and practical money concepts  like how credit cards or taxes work. These lessons will quickly come in handy once they start working their first jobs and gain greater independence as young teenagers. But it's also important to keep a balance between short-term topics and long-term discussions around saving and planning for the future.

Being a parent means having many discussions with your kids about a variety of topics all throughout life, some of them more sensitive than others. While money management is an important one, these conversations can still be fun and helpful talks to have with the right approach.