Deciding how and when to teach your child good financial habits can be tricky. It’s best to start the conversation early and meet the children at an age-appropriate level.
One way to think about such a broad topic is to divide these habits into four main categories: earning, borrowing, spending and saving, and making financial decisions. From there, you can find opportunities in your daily life to talk openly about money and create “teachable moments.”
Whether as a parent, partner or caregiver, understanding how money is earned in a household is key to many family conversations.
- 3-5 years: Explain how and when they can earn money (ie stipend, gifts).
- 6-12 years old: Identify jobs or chores kids can do to earn money, and learn the difference between a paycheck and a salary (vs. allowance).
- 13-21 years old: Calculate the future income needed to maintain the desired standard of living and the impact of part-time or full-time employment.
While unmanageable debt is something we would all like to avoid, borrowing money can be a recurring financial event throughout life. Whether borrowing money from parents for a small purchase in childhood or applying for a car loan for the first time, understanding borrowing is an important factor in financial health.
- 3-5 years: Describe the difference between borrowing and owning and why it is important to return borrowed items.
- 6-12 years old: Identify situations where people pay for certain items in small amounts over time and summarize the advantages and disadvantages of using credit.
- 13-21 years old: Describe the different ways to borrow money, the importance of establishing a credit history, and college financing options such as student loans.
Spending and saving
One of the keys to financial health is understanding the concept of setting aside the income needed to make purchases related to both needs and wants. Talking about both spending and saving as one topic can help family members understand that in order to spend, you have to save.
- 3-5 years: Set a savings goal for a specific purchase.
- 6-12 years old: Create a weekly savings plan, explain why saving is important to achieve long-term goals, and consider opening a savings account.
- 13-21 years old: Explain concepts such as investing, compound interest and inflation. Create a plan to prioritize expenses, manage expenses, and achieve goals.
Financial decision making
Along with talking to your family about big financial decisions, like making a big purchase or contributing to a savings account, it’s a skill that can be developed by modeling positive financial behavior. As a member of any family, doing your part to make responsible choices can have a profound impact on others.
- 3-5 years: Help a parent/guardian decide when (and when not to) spend money on a purchase.
- 6-12 years old: Consider the consequences of spending decisions.
- 13-21 years old: Discuss how individual responsibility for financial well-being will change as life circumstances change.
Opportunities for family conversations about finances
There are usually many opportunities embedded in life lessons and big events that naturally occur in life. Just as it’s important to discuss certain financial topics with your family, it’s also a great idea to use these natural opportunities to foster positive financial habits in children.
Here are some ideas for age-appropriate opportunities to work on building financial skills.
Identify and learn the value of coins and bills
Sort money (to spend and save)
Deposit and withdraw money from the bank
Learning the rules and expectations regarding purchases (payment for purchases)
Compare costs to determine if something costs more or less
6-12 years old:
Open a savings account (deposit money and track interest)
Earn and spend an allowance
Create a budget for a purchase that requires savings
13-21 years old:
Saving for college
Saving to live alone
Apply for and pay student loans
To buy a car
Build a credit history
There’s never a bad time to start teaching kids good money habits. Don’t be afraid to talk candidly about money with your kids, and plan your conversations with kids so they’re timely and appropriate.
Opening a savings account is a great way to gain experience with savings. With First Interstate’s Youth Savings Program, young savers can open a regular savings account with a lower account opening amount and no minimum balance until age 24.
Open an Epargne Jeunes account online.
The youth program will automatically apply based on age; customers under 18 must have an adult owner/signatory on the account.