Most people make financial mistakes at some point in their lives, be it a credit card default, reckless spending, or a poorly managed monthly budget. If you’re among them, you know how frustrating such mistakes can be, so you’ll want to minimize the chances of your child making them.

While your young one might not be interested in financial management, starting their education early can be highly beneficial. By adopting the right behavior and habits during childhood, they won’t need as much conscious effort to manage their money wisely throughout adulthood.

If you’re not sure how to help your child build the necessary skillset, this article will give you some actionable advice for teaching kids about money. We will present the most important lessons they should know and explain how to make the learning experience engaging.

Why Teach Kids About Money

According to a survey by the National Financial Educators Council, an average American lost $1,819 due to financial illiteracy in 2022. Despite the estimated nationwide loss of $436 billion, it doesn’t seem like there are enough financial education programs, especially for children. 

Tanya Van Court, the founder of Goalsetter, says that 87% of teens “don’t know how to manage their money.” This isn’t a surprise considering that financial education isn’t a part of many schools’ curriculums.

With this in mind, it’s up to parents to ensure their children have adequate knowledge and skills to manage their finances properly. The good news is that there are various ways to do so.

How To Teach Kids About Money

Source: OleksandrPidvalnyi

To ensure your child develops a healthy relationship with money, you’ll need to cover various aspects of financial management. Take the following steps to leave no stone unturned:

1. Help your child understand the value of money
2. Explain the difference between needs and wants
3. Teach your child how to budget
4. Encourage saving and long-term thinking
5. Introduce your child to the banking system

How To Teach Your Child the Value of Money

While children may understand that money is a finite resource, they might struggle to apply this knowledge. It’s not enough to merely tell your child something costs a certain amount of money—you should explain the practical implications of that cost.

Introducing the concept of opportunity costs is among the best ways to do this. It will teach them that buying one thing might mean they’ll need to let go of another. For instance, you can give them $10 and show them two toys where one costs $7 and the other $8. When they can only pick one, they’ll see that there has to be a trade-off. 

Another approach you can take is to store their pocket money in a clear jar. Whenever they want to buy something, they should take the money out. Once your child sees the money physically disappearing as they spend it, they’ll learn to value it more.

Help Your Child Differentiate Between Necessities and Luxuries

Most children are impulsive to at least some extent. When they see something they want, they turn it into something they need. You should help them set a clear line between the two so that they can make rational spending decisions.

Teaching by example is the best thing to do here. Take your child grocery shopping and put items in the basket in a particular order based on their importance:

1. Necessities—Eggs, milk, bread, etc.
2. Non-essentials—Peanut butter, pasta sauce, canned soup, etc.
3. Luxuries—Gourmet foods, home decor items, etc.

As you add items to the basket, explain the reasoning behind your categories. Then, you can translate this to their language by giving examples close to them—pens and notebooks fall under needs, while ice cream and comic books are wants. With time, your child will learn how to avoid haphazard, emotion-driven purchases.

How To Teach a Child To Budget Money

Source: Alexander Grey

Budgeting is among the most essential skills your child will need their entire life. Regardless of how much money they make in adulthood, they’ll need to spend it sensibly to maintain their financial stability. The sooner you teach your child to stick to a budget, the more mindful they’ll be of it later in life.

Giving your child an allowance is a great way to get started with budgeting. By having a specific amount of money for a fixed timeframe, your child will need to learn how to organize their finances.

You can make the process more fun by letting them use a budgeting app. Help them set up different categories and dedicate a portion of their budget to each. The following table gives an example assuming your child’s allowance is $20 per week:

Category	Budget
Savings	$4
Entertainment	$7
Snacks	$5
Miscellaneous	$4

To ensure your child stays disciplined, don’t give them extra money if they go over the budget unless there’s an emergency. This will help them understand the importance of rational thinking and the consequences of overspending.

Stress the Importance of Saving

Your child should know that life is unpredictable and that having some money tucked away can buffer this uncertainty. If they’re too young to understand this, you can explain the importance of saving by encouraging them to set aside some portion of their allowance for a large purchase they want to make.

Either way, there’s a lot you can do to help your child be frugal and save up. If they qualify for a debit card, you can open a bank account in their name and help them save money in it. If you want to start sooner but still need something better than cash, a prepaid card can be a good option.

As your child sees money accumulating on the card, they’ll be more inclined to grow their savings. You can keep track of their spending to help them find new opportunities to save up and avoid impulsive decisions. Show your child the value of long-term thinking, and they’ll have a safety net that can bring them peace of mind.

Teach Your Child About the Banking System

Source: August de Richelieu

As your child grows up, banks will become virtually unavoidable. Your child will at least have a checking account they’ll use to get paid. Make sure they’re ready for it by teaching them about the following:

• Fees
• ATMs
• Bank statements
• Online payments

When the time comes, you’ll want to devote special attention to credit products. Your child will likely need them at some point, so they should be ready to take on the responsibility of borrowing from banks.

Teaching your child about credit in practice might be hard because most teens aren’t eligible for loans and credit cards. Besides having a good credit score, your child has to meet certain age criteria to qualify. While the legal threshold is 18, they may not obtain a credit card before turning 21 unless they meet one of the two requirements imposed by the CARD Act of 2009:

1. Demonstrating an independent ability to repay the debt
2. Having an eligible co-signer over 21

Some parents add children to their credit cards to teach them about credit and help them build a credit profile sooner. Unfortunately, this isn’t an effective way to reach either of these goals. It carries a high risk because your child may misuse the card and deepen your debt. 

Besides, adding a child as an authorized user doesn’t build an independent credit profile for them. As soon as you remove them from the card, they have to start over because all credit history associated with the card gets deleted from their profile. 

If you want to move beyond education and take action to make your child’s financial future easier without the above drawbacks, choose FreeKick.

Go Beyond Financial Education With FreeKick

While it’s important to provide your child with a financial education, you also need to take solid steps to give them a bright financial future, such as building their credit profile and protecting their identity. FreeKick by Austin Capital Bank is an FDIC-insured deposit account that offers both of these services.

FreeKick’s Credit Building Service

All children aged 13 to 25 can benefit from FreeKick’s credit building service. To reap its advantages for your child, take the following steps:

1. Create an Account—Sign up on FreeKick.bank and choose a deposit that suits your budget
2. Set It and Forget It—FreeKick will start building 12 months’ worth of credit history for your children
3. Keep Growing—After 12 months, either close the account without any fees or continue building credit for your child for another year

With these simple steps, your child can have up to five years of credit history once they turn 18. This will help them save $200,000 during their lifetimes as they’ll be able to secure loans on favorable terms.

FreeKick’s Identity Protection Service

Credit building is incomplete without identity protection. Child identity theft occurs every 30 seconds, and if your children fall victim to it, their credit profiles can suffer significant damage. This is why it’s a good idea to invest in FreeKick’s identity protection service, which offers the following features for minors:

• Credit profile monitoring
• Social Security number (SSN) monitoring
• Dark web monitoring for children’s personal information
• Up to $1 million identity theft insurance
• Full-service white-glove concierge credit restoration
• Sex offender monitoring—based on sponsor parent’s address

FreeKick also offers identity protection for adult children and parents via the following features:

• Credit profile monitoring
• SSN monitoring
• Dark web monitoring for personal information
• Up to $1 million identity theft insurance
• Full-service white-glove concierge credit restoration
• Lost wallet protection
• Court records monitoring
• Change of address monitoring
• Non-credit (Payday) loan monitoring
• Free FICO® Score monthly
• FICO® Score factors
• Experian credit report monthly

FreeKick Pricing

FreeKick has two pricing plans:

FDIC-Insured Deposit	Annual Fee
$3,000	$0 (Free)
No deposit	$149

With both plans, you get:

1. Credit building for six children aged 13 to 25
2. Identity protection for two parents and six children aged 0 to 25

Secure your child’s financial future through good credit and a protected identity—sign up for FreeKick today.

Featured image source: Karolina Grabowska