6 Money Management Habits to Teach Your Children

Money management is tough. It’s even tougher if you were never taught good money management habits when you were young! As children, teenagers, and even as young adults, learning how to handle money is crucial. Who do we look to to teach us how to handle our finances? Usually, it's our parents.

If left without a solid financial education, we may be leaving the next generation not only to reckless spending but to be fooled by bad investment decisions, roped into terrible loans, in debt with credit cards, and floundering without a retirement future.

As a real estate investor, I’m in the business of financial futures. Not only do I see the value in building up retirement accounts and passive income but in financial education: especially where our children are concerned.

Financial literacy is so lacking these days, and if you want your kids to be on a firm financial footing early, these are seven habits to teach them ASAP.


6 Money Management Lessons to Teach Kids for Lasting Financial Literacy

1) Savings Come First

Otherwise known as “pay yourself first,” this is perhaps the most crucial lesson to learn early. For children and teenagers especially, the idea of putting money aside and just letting it sit (and, in their minds, not getting anything out of it) is difficult. They want to spend it! You can teach savings to very young children by helping them set goals. For instance, encouraging them to save up for something they want to buy rather than spending their money as soon as they earn it.

For older children, saving can be taught through an actual savings account, college funds, and the responsibility of actually beginning to save for their future without the pressure of bills and living on their own.

2) Delayed Gratification

Tied into saving is the idea of delayed gratification: we can’t always have everything we want and we can’t always have it right now. For children, this is a tough concept. They want it and they want it now. For parents, this can be taught by refusing to indulge children in their impulses. Don’t give in when they want something they see in the store. Stick to your guns and don’t pay for every little thing that they want. If they really want it, they have to pay for it themselves. If they can’t afford it, then they can save up.

Which again: how great to set a goal and have them feel the pride of earning, saving, and accomplishing a financial goal! Use a clear jar so that they can visually see their cash growing.

Ultimately, it’s a reminder that we can’t and shouldn’t whip out the credit card to get instant gratification to buy what we can’t afford or to satisfy impulses. It will instill financial self-control and the ability to step back and really weigh the worth of purchases in the future.

3) Budgeting

Beyond saving, there’s the idea of budgeting. Your child has begun to understand that it’s important to save their money. Great! But are they then wanting to blow the rest of their cash on themselves? Not as great.

Teach them how to budget by dividing up categories like saving, spending, giving, and even taxes (it’s a nasty surprise when they get their first real job if you don’t talk about it now).

4) The Hard-Earned Dollar

Most of us remember what it was like to receive an allowance from our parents. For some, that allowance was given freely—nothing had to be earned. For others, allowance was based on chores or other tasks done to help the family. I’m a proponent for the latter. Kids need to learn that money is earned. It’s precious and valuable and not to be wasted. If they have to earn their allowance, it’s going make them appreciate what they earn (and what they buy) that much more.

5) Opportunity Cost

This concept is difficult for younger children who tend to live in the present, but it’s crucial to understand early. If you buy those trading cards now, you won’t be able to get that action figure later. Want that new scooter? You’ll have to pass on those video games. It’s weighing what things you want and against what is really worth it to you. Opportunity cost can then lead into some lessons about investment, like risk versus reward.

6) Credit Card Dangers

This is a big one for older teens. From a young age, though, if your children are seeing you always paying for things with plastic (and, by the way, most children and even teenagers might not understand the difference between credit and debit cards, they just know you’re not paying with cash) they think credit cards are just an easy way to pay without money. You have to teach them about interest and debt early on because it’s far too easy to be seduced by the allure of credit.

Ultimately, more than sitting down and talking to your kids about finances, so much of financial literacy for kids comes from leading by example. Is your relationship with money a good one? Do you show restraint? Do you openly stress about finances in front of your children or argue about it with your spouse where they can overhear?

These are things to think about.

How you relate to money matters. It will impact your children. Remember: actions always speak louder than words. If we lead by example, we’ll be imparting valuable lessons to our children without even knowing it.

What is the best lesson you were ever taught about finances? Let me know in the comments.