12 Practical Money Skills Parents Need To Teach Their Kids
Are you a parent? Here's a crash course on twelve basic money management skills to teach your kids.
My grandpa always said that the biggest enemy of your money is inflation.
He was right.
Taxes and debt are other obstacles to building wealth.
These are twelve financial lessons to teach your kids about money that I wish I had known when I was younger.
1. Give Them Real Work
Problem
Kids often think money grows on trees or magically appears in their bank accounts.
If they don’t see the effort behind earning it, they won’t value money.
Solution
Pay them for real work.
Don't pay them for chores they should do anyway, such as cleaning their room.
Pay for extra tasks such as washing the car, pulling weeds, helping organize the garage, mowing the lawn, and walking the dog.
Your children learn to earn money through hard work.
Why Does This Matter?
When kids earn their own money, they begin making more informed spending choices.
That $20 toy suddenly feels different when they remember how long it took to earn it!
Key Point: Pay kids for real jobs so they learn that money comes from hard work.
2. Save With Jars (Visual Learning Works!)
Problem
Kids struggle with abstract ideas like saving.
If they can’t see their money growing, they’ll spend it all right away.
Solution
Use clear jars labeled "Spend," "Save," "Give," and "Invest."
Every time they earn money, help them split it up.
Watching the "Save" jar fill up over time makes delayed gratification an exciting experience!
Why Does This Matter?
This simple method teaches budgeting, investing, long-term thinking, and generosity.
Plus, it’s way more satisfying than looking at numbers on a screen.
Key Point: Clear jars make saving visual and fun. They help kids learn to divide their money wisely.
3. Open A Savings Account
Problem
Piggy banks are great.
Piggy banks don’t teach kids about the power of compound interest.
Saving money in a bank teaches kids about compound interest.
Solution
Open a real savings account for them in person or online.
Open a high-yielding money market or savings account for your children.
A savings account shows them how interest works.
They may only earn pennies at first, but they slowly start to connect the dots.
Make it a big deal.
Let them be the ones to fill out the form.
Let your child ask the banker the question if it's a bank where you live.
Why Does This Matter?
Kids who understand banking early are more likely to save as adults.
Plus, seeing their balance grow (thanks to interest!) is a great motivator.
Key Point: A real savings account teaches kids how banks work and makes saving feel official.
4. Teach Budgeting
Problem
Without spending limits, your child will quickly go through their cash.
Many adults are guilty of this, too!
Solution
Help them plan how to use their money.
Teach your child a variation of the 50/30/20 budget that works like this:
50% goes toward necessities (rent, insurance, healthcare, transportation, groceries, paying off debt, and utilities).
30% goes toward saving, investing, or paying off extra debt.
20% is for wants.
If they receive $20, discuss how half of it goes toward necessities.
$6 is for saving, investing, or paying off debts.
They can spend the final $4 on wants, such as candy, toys, or going to the movies with friends.
Why Does This Matter?
Budgeting stops impulse purchases.
Following a budget helps kids think ahead.
A budget teaches children at a young age to live below their means.
A budget teaches basic money management skills.
Following a budget is a life skill that many adults wish they’d learned sooner!
Key Point: Budgeting teaches children to plan their spending and save money rather than wasting it.
5. Start A Retirement Account
Problem
Investing sounds complicated.
The earlier your kids learn about investing and retirement accounts, the wealthier they’ll be later.
Solution
Open a custodial Roth IRA if they earn money from jobs or a small business.
Explain that this money grows over time.
Show your children charts of how $100 today could be $1,000 later by investing in the stock market through a retirement account.
Why Does This Matter?
Kids who grasp compound interest early have a huge advantage.
Even small amounts can now accumulate into significant wealth over a lifetime.
Key Point: A kid-friendly retirement account makes investing simple and powerful.
6. Run A Lemonade Stand (Mini Business 101)
Problem
Most kids don’t understand concepts like profit, loss, balance sheets, costs, or how businesses operate.
Solution
Help your child set up a lemonade stand, bake sale, dog-walking service, or any other venture they’re interested in.
Have them calculate the costs, such as the prices of lemons, sugar, and water, and then set the prices accordingly.
Afterward, review with them how much they earned versus how much they spent on the lemonade stand.
Why Does This Matter?
Real-world business lessons matter more than theory and textbooks. Plus, it’s fun!
Key Point: A lemonade stand teaches kids profit, expenses, and hard work in a hands-on way.
7. Take A "Tax" (Because Taxes Are Inevitable)
Problem
Taxes are confusing.
Children have no idea why they have to pay them when they receive their first paycheck.
They don't understand how deductions work
Solution
When your kid starts to earn money, take 40% as "tax."
Teach them that the funds return to their parents’ bank account to serve as a form of Social Security and other tax benefits.
It's money they may never see again or receive once they reach retirement age.
Take the money and explain to them that they must pay taxes or face jail time.
Ask them, what do you think about having 40% of your income automatically taken from every paycheck?
Why Does This Matter?
Kids who understand taxes won’t panic at their first paycheck deduction.
They'll better be able to budget around their after-tax income.
Key Point: A "tax" helps your kids grasp why adults don’t keep every dollar they earn.
8. Explain Inflation (Why Prices Go Up!)
Problem
Kids think that $1 today will always buy the same thing later.
Inflation changes that.
Solution
Compare prices from your childhood, such as a movie ticket or a candy bar.
Explain to them that money loses value due to a depreciation of the currency.
Inflation erodes the value of money sitting in a bank account.
That's why you want to invest in the stock market.
Why Does This Matter?
Understanding inflation encourages smarter saving and investing.
Key Point: Inflation teaches why your children need to learn how to grow their money over time.
9. Teach Them The Time Value Of Money
Problem
Kids don’t know that money today is worth more than money tomorrow.
Solution
Show them how $100 saved now could grow to $200 later with investing.
Show your children charts to make the lesson visual.
Why Does This Matter?
Starting early means decades of compound growth.
The earlier they start to invest. The wealthier they will be.
Key Point: The sooner they save or invest, the more money grows.
10. Encourage Them To Work
Problem
Many teens spend all their earnings.
They miss out on investing early.
Solution
If they work part-time, help them open a Roth IRA or contribute to a 401(k) if available.
Teach your kids about investing in retirement accounts and the stock market.
Why Does This Matter?
Starting young gives your child a massive head start on wealth-building compared to most teens who have no concept of personal finance.
Key Point: A teen's job with investing sets them up for financial freedom.
11. Teach Them The Dangers Of Debt
Problem
Young adults are often encouraged to take on debt for college, a car, and to purchase basic items on a credit card.
They're never taught about how interest works.
They then end up in debt.
Solution
Explain how debt grows with high interest rates.
Debt is a negative form of the time value of money.
You could explain to them that if you buy a $50 game and pay for it with a credit card, you pay $100 for the video game.
Why Does This Matter?
Children who understand the danger of debt are less likely to fall into debt later in life.
Key Point: Teach them that debt makes things cost way more over time.
12. Teach Them How Credit Cards Work
Problem
Children see adults swiping credit cards all the time.
They don't understand that it's money that you have to pay for, with interest, if you don't pay it off every month.
Solution
Teach them the importance of prioritizing purchases with a debit card.
A debit card uses money that is in your checking account.
When they’re older, let them use a secured credit card with a low limit.
Paying off the credit card every month allows you to use the credit card while avoiding paying outrageous credit card interest.
Why Does This Matter?
Responsible credit card use builds a strong credit score.
But it needs to be paid off each month.
Key Point: Credit cards are tools, not free cash. Always pay them on time!
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Summary
Schools don’t teach money skills.
Many parents fail to teach their children the basics of money management.
These fundamentals lay the foundation for teaching your children critical money management skills.
These money management skills are the groundwork for building wealth.
Pro Tip: Make it fun! Turn lessons into games, challenges, or real-life experiences. Your kid will thank you later for teaching them these financial lessons!
Disclaimer: This content is for educational, entertainment, and informational purposes only. This is not business, financial, investment, or any advice. I write online about topics that interest me. I make mistakes just like everyone else. Always consult a professional before making health, life, finances, investments, taxes, or legal matters.
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