Sense & Centsibility Blog

How to Teach Kids Smart Money Habits

lemonade stand

If you’ve read my previous posts, you know I’m a big fan of Liz Weston. I think her money advice is often thought-provoking and right on target. She recently discussed a British study that concluded we’re not starting soon enough to teach kids about money.

Other studies have apparently concluded that financial literacy education does not always work because it starts too late. The British researchers determined that kids’ money habits are set by age 7; therefore we should teach them BEFORE they reach kindergarten. Weston writes: “You may think that’s a stretch, given that many preschoolers are still grappling with the notion that a nickel isn’t worth more than a dime, even though it’s bigger.”

Two University of Cambridge behavior experts, Sue Bingham and David Whitebread, reviewed previous studies to find out how children learn in general, and how they learn about money in particular. What they discovered is the two most important money habits, the ability to plan ahead and the ability to delay gratification, are typically developed in early childhood. The British government’s Money Advice Service published the study. Guy Shone, the service’s research director said the “window is zero to seven” and “it’s very hard to reverse those habits later in life.”

Who knew? And more importantly, “what can we do to prevent our kids from living a life doomed to debt, manipulation by advertisers and various scams they won’t see coming?” asks Weston.

Although change may be tough, it’s far from impossible. Shone believes parents as a group are uncomfortable talking to kids about money and often underestimate how powerful they can be with building money skills.

Susan Beacham, a financial literacy advocate, encourages parents with younger children to take advantage of their opportunity to reach children “at an age when they still think we are geniuses.” However, parents with older kids should expect a bit of a challenge “since they’re changing mindsets rather than shaping them.”

As we can all agree, the best way to learn is by first-hand experience. Rather than lecturing your kids, include them in hands-on activities that will leave a lasting impact.


happy family

1. Take your kids to the grocery store

Being prepared with a list teaches the importance of planning ahead and “shopping systematically” instead of just “grabbing things off the shelf” suggests Nancy Baynes, a spoke woman for the service that published the study. Weston points out that being a part of the decision-making process can help kids to understand there are trade-offs when spending money. In turn, this may help kids learn to delay gratification. Having your child help compile a grocery list can show kids the importance of prioritizing rather than focusing on wants only. Parents can also talk about sale items, which sizes are a better buy, and how they make buying decisions.

2. Teach kids to save

If you want your kids to save as adults, start them early. The researchers found that young children like to save because they enjoy acting like adults. This means kids need positive role models. Making they sure they save a portion of every dollar they get will help build strong saving skills.

3. Let your kids buy things and make mistakes

The concept that money is a limited resource that can only be spent once is a struggle for kids to understand. Weston encourages parents to “reinforce the concept” by giving children a small amount of money to spend in a store. But don’t give a penny more if your child wants more or is disappointed in the purchase.

4. Kids should also earn

It is essential for kids to learn that our incomes determine what is affordable and that we can’t afford everything. Paying kids for EXTRA chores around the house (everyone should pitch in with typical stuff) teaches them how to trade their time and effort for cash. Once kids start working, they will have a better idea what to expect and how to manage their paychecks.


5. Help them to delay gratification

Ah, here’s a challenge! Start by helping your kids to set savings goals like buying a toy or a game. Weston suggests using a chart to track their progress to keep them engaged and interested.

Another idea is to teach kids strategies to “make waiting easier.” If they’re tempted to spend their money rather than save for the goal, let them do so. But don’t help them pay for their goal when they have to wait. This helps to learn there are consequences to our spending decisions. Another option is to distract them from their impulsive moment by helping them plan a fun alternative like riding bikes or making something from items on hand.

6. Make it fun

Lastly, make learning about money fun. Here are a few websites to check out:

Back to School Family Education: Teach your child the value of savings and spending wisely with these games and tips.

The Mint: Come explore fun games and activities to learn about money. Great ideas for teachers as well.

Sense and Centsibility: How to Teach Your Teens about Money.

Have older children? Check out Barb's post on Giving Adult Children Money and when to say no.

The bottom line is to start young and teach by example! As parents, never underestimate your power to help your kids grow into fiscally strong adults. If you really want to give them a gift – give them the gift of financial success!

Barbara Miller is a Certified Financial Counselor with LSS and specializes in Bankruptcy Counseling and Education. If you have any questions about raising money smart kids give us a call at 888.577.2227 or visit our website at It starts with you!