Genius Strategies for Raising Kids to be Smart About Money, Starting at Age 4

Talking about money isn't easy. Talking about money with your kids is even more challenging. Should you tie allowance to chores? How do you ensure your child isn't spoiled? How do you deal with college debt? Whether your kid is 4 or 24, it's never too early—or too late—to help build financial confidence and encourage financial responsibility.

Young Kids (4 to 7)

Money habits form as early as age 5, according to research from the University of Michigan, but don't let that send you into a panic. Just start somewhere. "Learning financial skills is like learning to tie your shoes or play the clarinet—it takes practice," says Joline Godfrey, author of Raising Financially Fit Kids.

Communicate about money

Take the taboo out of money conversations and talk about it around your kids—but not in an "I'm so stressed about bills" way. Rather, share your excitement about a bargain or the fact that you've saved enough for a vacation. For kids aged 4 to 7, Godfrey says to focus on using money terms (like "save," "share," and "choose") and phrases about financial values (like "Save for a rainy day," "Share with others," and "Carpe diem").

Involve them in your shopping

When you say, "Wow, this is on sale for $3!" it shows your child that you recognize the price, see the value, and are making a decision about whether to buy it, says Erica Sandberg, a consumer finance expert and advice columnist for CreditCards.com.

At checkout, have them buy something. Hand them cash to use (because it's more tangible than plastic) and get the change back. By talking to the person behind the counter and exchanging money—even if it's not theirs—they'll start understanding that things cost money and become aware of personal responsibility for purchases.

Open a savings account

Picking out a special piggy bank can build excitement about saving, says Jeannine Glista, managing partner at Biz Kid$, a TV series that teaches kids about money and business. "Saving money is fun for kids to do—encourage that," she says. When they receive a considerable amount of money, take them to the bank to deposit it into a savings account. You could even deposit the same amount into your account to show them you're saving along with them.

Play games

Simple math games—like those in the free app series by Duck Duck Moose—help youngsters get comfortable with numbers. Biz Kid$, the educational initiative associated with its namesake TV series, offers several interactive games on its site, says Glista, like Bring Home the Bacon, which helps kids identify wants and needs.

Encourage kids to play with a calculator. Have them add up the price of everything they want in a catalog or at the grocery store. Seeing the total helps them realize how much they need to save for big items.

Older Kids and Tweens (8–12)

Children at this age can start earning money, which is empowering. They'll start to develop money personalities and, even at this age, Glista says you'll recognize spenders and savers.

Brainstorm ways to earn

"Kids don't really start paying attention to how to manage money until they're making it themselves," Glista says. Encourage them to think about their passions or talents and how they can translate them into a business. If your child loves dogs, can she walk your neighbors'? If she likes crafts, can she make and sell them?

Encourage them to create a business plan by researching how much to charge. For a service, have them compare local flyers or survey neighbors to determine the going market rate for a dog walker or lawn mower. For a product, help them calculate supply costs and then set a retail price to earn a profit.

Talk about spending choices

Yes, it's fun to see those dollar bills pile up, but what to do with them? Buy a new video game or splurge on candy? Discuss if it's a good idea to spend all the money on, say, chocolate—but without criticism. At this age, Godfrey says, "The positive reinforcement of good choices is more important than the punishment of bad ones."

You can also begin to teach the concept of indulgence versus need. Sandberg explains, "If you're at the drugstore and your son asks to buy a toy, and it wasn't your intention to buy it, say, 'OK, but I'm going to take that money from your savings.' That's a powerful thing."

Be positive about your job

There are days when you just don't want to go to work—or your kids complain that you're going to the office again. As natural as it is to gripe, make the concept of a job exciting, says Glista. You want kids to feel enthusiastic (not greedy) about the idea of making money. This way, you'll create guilt-free associations with work and what it allows you to do.

Model philanthropic behavior

The next time your local zoo or public library hosts a benefit, take your kids and have them see you write a check. "Kids will copy what they grow up watching," Godfrey says.

Give your children more control over money decisions. Let them choose a charity and an amount they'll donate to that organization on a monthly or annual basis, whether it's $1 or $10. "It's more important that your child gains self-confidence and a realization that they're doing this themselves," Godfrey says.

Teens

At this stage, it's time to start involving your child in your family's financial situation, especially once college becomes a closer reality. At the dinner table, talk about credit scores and what it takes to apply for financial aid. Education is power.

Track dollars

There are several budget, saving, and investing apps that let kids clearly see where their money goes, says James Nichols of Voya Financial. He recommends Current, a free app that syncs with a debit card and features spending, saving, and giving "wallets." Parents can set up notifications and make direct deposits as well.

Alternatively, Godfrey suggests kids learn how to budget money by keeping a record of every penny they spend over a period of time. "Then evaluate the information together so they see where their money goes."

As for credit cards, experts say teens shouldn't get one until they have a regular source of income and can make payments. "Otherwise," Glista says, "the risk is too high for not being able to pay it off on a timely basis."

Play "What If?"

Discuss tricky money situations and how to handle them. For example: Who pays on dates and how do you decide? What if your date's family has more money than ours or vice versa? "This begins to be an issue early," Godfrey says, "and in high school it is one of the last taboo topics for families." While there's no right answer, sharing your thoughts better prepares them for sticky situations.

Introduce them to investing

Consider a site like Yahoo Finance, which lets you create a mock investment portfolio. Help your child choose a few stocks and watch the ticker go up and down. They'll see how their stocks perform over time and begin to understand the basics and volatility of the market, Nichols says. Encourage them to think of investing as a subset of saving.

Discuss how to pay for college

Teens are about to leap into full independence, so empower them to take charge of financial tasks, like researching how to pay for college. Godfrey says they should manage college applications and fill out their own Free Application for Federal Student Aid (FAFSA).

If your family doesn't have the resources to cover college, involve them in your problem-solving. Glista suggests taking your teen to a meeting with your financial planner. "Kids aren't always aware of the financial impact college has on their parents," Nichols says. "Having a professional in the room can provide objectivity and take the emotion out of it."

Discuss how much you'll need in loans for college and how that translates into monthly payments. Before taking out a loan, create a repayment plan and decide if your child will be responsible or if you'll split the bills. "No one wants to graduate and be faced with huge sticker shock," Nichols says.