Raising Financially Savvy Children – Tips For Teaching Your Children About Finance

by The Happy Rock on July 26, 2007

This is a guest post by Tehn Yit Chin over at @ Cheap as Chips, “a personal finance blog with an Australian spin”. Lend him some support by checking out his site.


We, as parents, have an enormous responsibility to our children. As soon as they are born, we are responsible for their well being. Initially, we give them care and ensure that they are healthy. As they grow, our responsibility shifts to their behavioral development, and one aspect of this is the way our children see financial matters being handled.child_speedbumps.jpg

One of the ways that children learn is by copying. The child observes our actions again and again over a period of time, and they will start to copy our actions. When our children are in their toddler age, development of simple actions like learning to walk and talk are usually accelerated when there are other kids around for our child to copy.

The children also learn by repetition. Something that is performed over and over again will be ingrained in our children’s behaviour, almost like a second nature to them.

Our actions in the way we, the parents, handle money are also important as our children will be exposed to them, and will copy them if there are exposed to them over a long period. ie, If the parents are problem gamblers, there is a higher chance that children will be gamblers as well, or if the parents always uses credit irresponsibly, the child would probably behave likewise.

So what can we do to give our kids a better way of dealing with financial matters.

  1. Involve the kids with financial decision making – When the children are able to understand, involve them in most of the day to day financial decision making. This could be simple things like a discussion with them on deciding on which type of bread to buy, or clothing from Target vs clothing from Calvin Klein.
  2. Ask for the children’s input when it comes to setting up the family budget – The kids will want to be part of the the family budget. This will also show that their contribution in the decision making will not only affect themselves, but also the family as a whole. Make it a part of a family ritual, and make it fun for the kids.
  3. Set up a savings account for them – A bank account for them is a real motivation for the kids as they can see the real results of the decisions made. A bad decision means that the account balance will go down, and a good decision means that the account balance will go up. Make sure that the bank account has the kids name on it so they understand that the bank account is theirs.
  4. Reward the kids as you reward yourself – This will give the kids a targets to aim for, financially. EG, if the child wants to buy that comic book, ask the child to save for it from his pocket money.
  5. Be upfront with them – Don’t colour the family financial situation for the kids as this may bring up false expectations in the kids. You know, if the family can’t afford to go on the big holiday this Christmas, let them know and the reasons why. Or if the big holiday is happening due to strong financial commitment from family, let them know that as well.

These are five items that I will provide for my son when he gets a bit older, (at the moment, he is only 21 months). My wife and I already have started a couple of these ideas, in particular the savings account. Remember to keep doing these things for an extended period; to be copied and repetition is the key.

By ensuring that your children are positively influenced, financial wise, we are preparing them for a much brighter future. Remember that we will not always be about or in a situation to help them out.

If you enjoyed the guest post, please consider checking out Cheap as Chips or subscribing to his feed.

{ 8 comments… read them below or add one }

Amanda July 26, 2007 at 10:18 am

I’m glad I came across this post on sk*rt. My son will be 1 next week and I have started thinking of all the things I need to instill in him. In fact, I just blogged about the manners I want to teach him. I like this article on finances too. I’ll need to get cracking on his own account…for now, we I have money set aside for him but its still lumped with my own. I’m also thinking of some blue chips….maybe…..


Ed B July 26, 2007 at 10:32 am

I have a 6yr old, 3 yr old and a .5 yr old.
I thought that I’d help my guys when they get a little older is to tell them that at the end of the month we’ll look in the piggy bank and I’d throw in an extra 5% to whatever is there. This does two things: 1. encourages them to save, and 2) provides an opportunity to discuss financial virtues.

When they are teens, I was thinking of helping them understand the stock market with the same idea. They choose a stock, then I’d track the stock’s performance that month and throw in or take out money corresponding to stock’s performance. (this idea is not fully thought through at this point) I’m open to better ideas.

Good Post


tehnyit (article's author) July 30, 2007 at 9:27 am

@Amanda, I am glad that you are thinking about your child’s future and have thought about how you want to teach them. Most people hasn’t even taken to the first step to think about this.

@Ed B, those are two fantastic ideas. I especially like the one about the piggy bank. 5% is certainly a sweet deal. Can I invest in your bank as well? 😉


Ed B July 30, 2007 at 10:38 am

tehnyit, your’re stuck with ING. I’m trying to make it exciting for the kids.


Cristina Favreau August 3, 2007 at 2:00 pm

I love how you make each of these points clear and to the point. My son will be 23-months-old tomorrow and my daughter just turned 5 months on Wednesday.
We set up an RESP and a savings account for our son and will be doing the same for our daughter very soon.
At least we got that down. I’ll be printing this article to keep it as a handy reference as my kids get older and as we start seriously teaching them how to be financially smart.
Thanks for this awesome post!


DG Haldeman\ May 2, 2008 at 9:28 am

Here is what I do with my kids 13 and 16. I give them a basic allowance for things like movies, high school sporting events, cd’s etc. I also give them a monthly clothing allowance. My 16 year old gets a monthly gasoline allowance. I deposit the money into their accounts (they have debit cards) and they spend it and they don’t get a dime more until the next month. I have found that this method does a couple of things; one is that if they run out they have to go earn money and two is that I am not always opening up my wallet and turning over money. I am confident I am spending less using this method. My 16 year old has a job and I am weaning her off of some of her allowance.

I hope I helped.


The Happy Rock May 2, 2008 at 10:26 am

@DG – Very nice. That plan works as long as you don’t hand out more money, or loan money. It doesn’t sound like you are doing that, so I suspect the plan is working to perfection! Nice job.


Piggy Banks October 9, 2008 at 6:53 am

Ive always encouraged my kids to save some of their pocket money every week, and generally i think they have. I dont make it compulsory however, as its their money. Every once in a while, if i can see they’ve saved a whole bunch, ill top up the piggy bank with a few extra coins as an incentive to save more, kind of like interest 😉


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