9 Tips to Raise Financially Smart Kids
By Carissa Hagen
If I could ask every client with children to do one thing, it would be to begin educating their children about money early in life. While this will not guarantee their financial success, it could save them from many unnecessary mistakes.
Starting early and incorporating lessons into everyday life can help your kids grow into financially savvy adults. Here are nine practical tips to get started.
1. Talk about money from a young age
Money can feel like a complicated topic, but it doesn’t have to be. Start discussing basic concepts with your kids early on to build their understanding. Explain what money is, how it’s earned, and how it’s used. Use simple, age-appropriate language, like saying, “We work to earn money, and we use it to buy the things we need and want.”
Take advantage of everyday activities to provide natural opportunities to teach. For example, explain where the money comes from when you pay at the grocery store or use an ATM. Answer their questions about money openly to create a safe space for learning.
2. Explain budgeting with the 50/30/20 rule
Budgeting doesn’t have to be boring or complex. The 50/30/20 rule is a simple way to teach kids how to manage their money: 50% goes to spending, 30% to saving, and 20% to giving. This approach helps them balance short-term enjoyment, long-term goals, and giving back to their community.
Make budgeting tangible and fun by using jars, envelopes, or a digital app labeled “Spend,” “Save,” and “Give.” Younger kids might enjoy dividing cash into jars, while older kids could track their money digitally. Explain how saving helps them work toward bigger goals and how giving can positively impact others.
Reinforce the value of budgeting through real-life decisions. For example, let them use their “spend” money at the store and compare prices to find the best value. Encourage them to set goals for their savings and watch their progress, which makes the concept more rewarding.
3. Let them earn an allowance
An allowance is more than just pocket money – it’s a tool for teaching responsibility. Tie the allowance to age-appropriate chores, like feeding the dog or helping with dishes, so they understand that money is earned.
Allow your kids to make choices with their allowance, even if they’re not perfect ones. For example, if they spend all their money on candy and later regret it, that’s a valuable lesson about planning and prioritization. Encourage them to set aside a portion for savings to reinforce the habit of delayed gratification.
4. Donate time and money to your community
Teaching kids to give back is just as important as teaching them to save. Encourage them to set aside part of their money for charitable causes. Let them choose where to donate, whether it’s to help animals, support a local food bank, or protect the environment.
Volunteering as a family can deepen children's understanding of giving. For example, they can help out at a community cleanup or pack meals for those in need. Pairing financial donations with hands-on experiences shows kids they can make a difference in multiple ways.
5. Have them open a savings account
Opening a savings account is a milestone that teaches kids how to manage money in the real world. To make it an exciting experience, take them to the bank or credit union to set up an account.
Explain how interest works and how their money can grow over time. Show them how to track their balance and set goals, like saving for a bike or a video game. These early experiences lay the foundation for responsible saving habits.
6. Involve them in the family finances
Kids learn by seeing how money is managed in real life, so involve them in age-appropriate ways. Discuss your family budget and explain how money is allocated for housing, groceries, and entertainment. Show them how much things cost, whether it’s the monthly electric bill or a trip to the grocery store.
Involve them in cost-saving activities, like comparing prices. Remember to talk to them about how you may pay more upfront for better-quality items, but they may cost less in the long run.
You can introduce the basics of investing by explaining how saving for long-term goals, like college or retirement, helps the family plan for the future.
Also, consider taking them with you to meet with your financial advisor. This can be a valuable opportunity for kids to see how professionals help manage money and plan for the future. During the meeting, you can ask your advisor to explain basic concepts, like saving for retirement or how investments grow over time, in simple terms. It’s also a chance for kids to observe how financial decisions are made collaboratively and thoughtfully, reinforcing the importance of planning ahead.
7. Recognize teachable moments
Everyday life offers many opportunities to teach kids about money. Use real-life situations, such as shopping or deciding between two items, to explain concepts like value and cost. For example, ask, “Do you think this item is worth the price?” to encourage critical thinking.
Celebrate their financial wins, like saving for a goal or making a thoughtful spending choice. Positive reinforcement helps build confidence and reinforces good habits.
8. Let them fail
As hard as it may be, letting kids make small financial mistakes is one of the best ways for them to learn. If they spend all their money on a toy they later regret, that’s a valuable lesson about planning and prioritization.
Discuss what they learned from the experience and guide them toward better decisions in the future. Creating a safe environment where failure is seen as a learning opportunity helps kids build resilience and better financial habits.
9. Teach by example
Kids watch what you do more than they listen to what you say, so model the behaviors you want them to learn. Demonstrate responsible spending by showing how you compare prices, stick to a budget, and prioritize saving.
Share age-appropriate insights into your financial decisions, such as why you’re saving for retirement or how you manage monthly bills. Being open about successes and challenges shows that financial responsibility takes effort and planning.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
Allegiant Wealth Strategies offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.