Teaching your kids about finances as soon as possible could put them on the right track to developing good financial habits. It could also set them up for financial wellness throughout life, a comfortable retirement, and generational wealth. And, perhaps more importantly, it could steer them away from the dark side of finances: reckless spending, crippling debt, and bankruptcy.
But it’s easier said than done. Where do you even begin teaching kids about money when they aren’t making any of their own? Luckily, there are many ways to teach kids about the value of a dollar. So let’s take a closer look.
Begin by Defining Money
You can start by explaining to your children that money is a medium of exchange for goods and services. Teach them the values of different coins and bills to give them a sense of purchasing power.But it’s always important to keep it practical. Take them grocery shopping with you and bring a certain amount of money. Explain that it could be used to purchase only a certain amount of goods equivalent to that money’s value. This could help children understand the limitations of money. This could also be a good chance to introduce the concept of comparison shopping. This could help them make cost-effective buying decisions in the future.
Teach Them That Money Is Earned
As a parent, you’re financially responsible for your child’s well-being. But, of course, money doesn’t grow on trees. And your kids should know that too. Help them understand that money is earned through work. Set them up with an allowance in exchange for activities like doing their chores or getting good grades. This would help children understand the connection between work and money. But they also need to understand how to manage that money.Three-Jar Budgeting
One popular way to help kids understand budgeting is by teaching them the three-jar system. This breaks your child’s earned money into three categories: spending, saving, and giving. You can work with your child to figure out the proportions for each, but here’s a breakdown of what these jars represent.Saving: This jar is used to accumulate cash for larger purchases in the future. Maybe your child wants a toy or video game with a hefty price tag. You can help your child save up money for this purchase over time. This can result in delayed gratification and allow the child to appreciate the effort put into purchasing luxuries.
Spending: This is money openly available for what the child wants: candy, snacks, clothes, etc.
Giving: This money can help your child develop a philanthropic bone as early as possible. Maybe there’s a cause they care about like the safety of animals or other children. But it can also be used toward gifts for others. Perhaps your child would like to buy a present for a friend whose birthday is coming up.
Once the jars are set up, it’s important to keep an eye on them. If the spending jar is running low or is depleted, the idea is not to draw from the other jars, but to modify spending habits. You can help your child look into where they may be spending too much and cut back on. This could lead to more room in the spending jar and perhaps more for saving and giving as well.
Checking and Savings Accounts
Two-thirds of payments made by U.S. consumers were made using debit and credit cards, according to a recent report by the Federal Reserve Bank of Atlanta.And as more people turn to plastic and mobile as opposed to cash, it may be a good idea to open a checking and savings account for your child.
Generally speaking, you need to be at least 18 years old to open a checking or savings account. But there are many ways to provide these accounts to minors.
For instance, you can open a joint account in your name and that of the minor. Both parties would be allowed to make deposits and withdraws from the account. However, many banks would give you some control. For example, you can put a cap on how much can be withdrawn.
A checking account could serve as the “spend” portion of your three-jar system, while a savings account would cover the other two. Some banks allow you to divide money in a savings account into different buckets meant for different purposes like charity.
These accounts would come with debit cards accessible to ATMs, as well as mobile banking app features. The key is to look for options with little to no minimum balance requirements and maintenance fees. You also should pay attention to any mobile banking features. For example, some checking accounts provide the parent with spending alerts and tracking capabilities.
Help Them Build Credit
Even though you generally need to be 21 years old to open a credit card, you can help your child build credit much sooner. If you already have good credit, one way is by making them an authorized user on your credit card. In most cases, the credit bureaus report the payment history of the cardholder and authorized user. This allows the minor to “piggyback” off the parent’s good credit activities.But you should do more than just make your kid an authorized user on your credit card. Teach them about credit cards. Help them understand the importance of paying off your balance in full each month. Also, help them understand basic concepts like APRs, as well as the consequences of falling behind on your payments.
Open the Path to Investing
You can begin investing in your child’s future through the Uniform Gifts to Minors Act (UGMA). The UGMA allows you to open a custodial brokerage account that holds various assets like stocks, bonds, mutual funds, and exchange-traded funds (ETFs). As custodian, you manage the account. But the account is technically the property of the minor and its assets are transferred to the minor once they reach the age of majority—typically 18 or 21, depending on the state.As you manage a UGMA account, you can help your child learn about different asset classes like stocks, bonds, and mutual funds, as well as the importance of having a diversified portfolio.
The Bottom Line
Teaching kids about finances doesn’t have to be complex. You can begin by teaching them the concept of money as a medium of exchange for goods and services. You also can introduce simple budgeting techniques like the three-jar system. And you can open joint savings and checking accounts to guide kids through managing their money. Finally, you can teach them about credit building and investing.The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
