How to Teach Your Kids the Right Financial Lessons

With a few helpful pointers, your kids will be on track for financial success.

It's safe to say that parenting comes with a whole slew of responsibilities. You have to keep your kids happy and healthy. You have to ensure they get a good education. And, if you want to avoid hearing them ask you for gas money until they're 30, you have to teach them about money.

Giving your kids financial advice can be tough. It's very easy to bore them and have your advice go in one ear and out the other. After all, there aren't a lot of middle schoolers who want to learn about 401(k)s.

The key to teaching your kids financial lessons that they remember is to tailor your advice to their age group. With the lesson plan below, your kids will know the ins and outs of personal finance by the time they leave home.

Introduce the concept of money in preschool/kindergarten

When your kids are barely past their toddler years, you need to stick to the basics. At about four to five years old, it's a good time to introduce them to the concept of money and how money is used.

Studies have shown that children can grasp the idea of exchanging money for goods at this point, but they might have trouble understanding the values of different pieces of money.

Here are some simple ways to start teaching your kids about money:

• Show them different coins and bills.
• Explain that you use money to buy things you need.
• Demonstrate how this works when you go to the store. Pick out a product and show them the money you'll use to buy it or have them give the money to the cashier.

Teach them about earning and saving money in elementary school

By the time your kids are seven or eight years old, they'll have some understanding that adults work for their money, so you can introduce how earning money works.

A popular way to do this is to give them money when they do their chores. You could even make a chart with the chores they can do and how much you'll pay them for each one.

This age range is also when children can comprehend the value of money and when they develop the ability to plan ahead, which makes it perfect for their first lessons on saving.

Encourage them to set savings goals for the things they want. For example, if they want to buy a game, explain how they'll need to set aside some of their chore money for the next two weeks instead of spending it all.

Open their first bank account in middle school

Once your kids are in middle school, they'll be ready for more advanced financial concepts. They'll probably be doing more challenging chores and earning more as a result, and they'll have a few years of experience with saving money.

With more pocket money and more knowledge about saving, setting them up with their own bank account is a logical next step.

You may want to take them to your own bank, or you can check out the best bank accounts to find one that won't charge any maintenance fees, even for accounts that don't have large balances.

After opening a bank account, make sure you go over:

• how to check their balance online or through the bank's app,
• using their debit card for purchases and withdrawals and the dangers of expensive overdraft fees if they don't keep track of their balance, and
• how their balance will grow through interest.

Cover budgeting and borrowing money in high school

These could be the last years of you and your kids living together before they set out on their own, so this is where you get them ready for "the real world." There are two key concepts they'll need to understand: making a budget and borrowing money.

Teenagers tend to have more expenses than younger kids, and they also earn more money, whether that's still from chores or from a job. That means you'll have the opportunity to draw up a budget with them. Here's how:

• Calculate how much they'll earn every month.
• Figure out what their typical monthly costs are, such as gas and food. You could determine this by reviewing their most recent bank statements with them.
• Compare what they spend to what they earn to see if they need to cut back.
• Stress the importance of paying themselves first by always saving a portion of what they earn immediately after they get paid.

High school is also when you can explain how borrowing money works, and that when you borrow money, the lender will charge you interest. From there, you can go into the subject of credit scores, explaining how credit scores are calculated and how your score affects the amount of interest you pay.

Since credit cards are one of the first ways many young adults borrow money, you should make sure to cover the dangers of carrying a balance on a credit card. One smart way to teach your kids about responsible credit card use is to make them authorized users on your own card to show them exactly how it works.

The final financial check before moving out

Sooner or later, your kids will be ready to move out and start their own lives. At this stage, it's wise to go over a few things with them to ensure that they're prepared:

• Confirm that they've made a budget and that they're going to be able to afford all their expenses, ideally with those expenses amounting to 50% of their income or less.
• Check that they have an emergency fund. While they may not have three to six months of expenses saved yet, they should have at least $500 to $1,000 in case they ever need some extra money.
• Advise them to get a credit card of their own to build their credit and consider being their cosigner to help them get approved.
• Recommend that they save for retirement as soon as possible. Most young adults don't think about this much, but starting early can help grow a retirement nest egg much more quickly.