Managing money is one of those important life skills that parents try to instill in their kids before they leave the nest. Unfortunately, there are no step-by-step instructions for teaching your kids to be responsible money managers. It takes time and effort on your part to help your children learn the healthy money habits that will last a lifetime.
The Consumer Financial Protection Bureau (CFPB) has a great resource for parents and caregivers that contains tools and tips to help kids develop money skills. They’ve divided their guide into three “building blocks” of financial development. This is a great framework to approach teaching financial literacy to kids – so we are sharing some of the key points in this article.
Building Block 1: Building executive function
Research has shown that being able to manage money successfully in adulthood requires a slew of cognitive abilities, such as impulse control, future-oriented skills and the ability to delay gratification, to name a few.
During early childhood (ages 3 – 5) you can help your children build these skills by helping them:
- Stay focused.
- Make plans.
- Follow directions.
- Complete tasks.
- Solve problems.
The early childhood section of the CFPB site has some very useful games and conversation tools to foster these types of activities.
Building Block 2: Building money habits and values
This phase, which can also be considered the “economic socialization” phase, is all about obtaining values, attitudes, knowledge and behaviors to provide context for financial practices. In addition, it encompasses “the development of attitudes, values and standards that will ultimately either support or hinder financial capability and well-being.”
As your middle schooler begins to interact with the financial world around them, it’s important that you help them with the day-to-day habits that will impact how they spend money and save as they get older.
One way to do this is to use real-life scenarios as teaching tools. For example, take them to the bank to open a savings account and have the banker explain what happens to the money once deposited. Have your child review a check at the restaurant. When you use your credit card to buy groceries, talk to your kids about the chain of events that has been set in motion as a result of that transaction.
Here are some additional resources for this age group.
Building Block 3: Practicing money skills and decision-making
As your middle schoolers turn into teens they begin to take on more responsibility managing money. They will have their first jobs, possibly get a credit card and maybe even sign a lease. As the stakes grow, so do the risks.
Because of this, it’s more important than ever to stay involved in your kids’ financial lives. Your supervision, guidance and feedback are important to help your teens learn how to navigate the world of money in a successful manner.
Continue to model good money management practices. Talk about financial topics – like compound interest, taxes, budgeting. Also, find ways for your kids to practice their financial skills with your supervision.
For more ideas on how to coach this age group, check out this section of the CFPB site.
If you have any questions about teaching kids money management tools, or would like our help in doing so, please reach out to your local MidWestOne banker.