Teaching Kids Healthy Financial Habits

Why Financial Literacy Matters

Every parent’s dream is for their child to grow into a healthy, happy adult. As it turns out, an essential part of achieving outcomes is teaching them how to have a positive relationship with money—living within their means, saving a portion of what they make, and investing prudently.

A recently published survey by researchers at George Washington University found that money-related stress among adults was highly correlated to poor financial literacy and “problematic financial behaviors.” Conversely, those who demonstrated a firm grasp of key financial concepts were more likely to be confident about their money situation.

Of course, the ability to make wise financial decisions isn’t something you’re born with—it’s a skill that has to be developed over time. That’s why experts say having conversations about money and modeling healthy behaviors early in your childrens’ lives is critical.

“If you don’t teach kids at a young age, you can’t expect them to grow up to be financially responsible,” says Neale Godfrey, founder of Children’s Financial Network, an organization that educates families about money.

Fortunately, encouraging your child to develop smart money habits doesn’t have to be difficult. In fact, it’s something you can easily integrate into your everyday life. The earlier your son or daughter learns those lessons, the more likely they are to blossom into a secure, financially savvy adult.

This guide was produced in partnership with

Talking to Your Kids About Money

Money management is one of the most basic life skills that a child can learn, but kids are too often left feeling their way in the dark. In part, that’s because financial education is a subject that many schools gloss over or skip altogether.

Only nine states require at least one semester of financial education coursework at the high school level, according to the nonprofit Next Gen Personal Finance. So it’s not surprising that 76 percent of Gen Z respondents to a 2019 study said they wished their school would have offered a fin-ed class.

That puts an even bigger onus on parents to help kids learn the basics like the importance of creating a budget and borrowing responsibly. “I ask parents to think about all the money lessons they wish someone would have taught them when they were younger,” says financial education instructor Monica Eaton. “Chances are, their kids will not get those lessons in school.”

That leaves kids to be taught at home, but unfortunately, lots of parents don’t know how to start the conversation. A recent survey found that 41 percent of parents expressed a reluctance to discuss financial matters with their children. That curtain of silence only makes it harder for kids to develop the financial skills they’ll need once they go off to college or join the workforce.

Rather than skirting the issue, experts say parents can use ordinary experiences—a trip to the mall or the bank, for example—as opportunities to talk about concepts like saving and spending. As with other aspects of life, kids will pick up on what they see their parents doing, too. Explaining the decisions you’re making to secure your financial future, whether it’s budgeting or building an emergency fund, can have a lasting impact.

“When they see mom and dad having more success in their finances, they’ll learn through osmosis,” says Samir Ahmed, a lead planner with the virtual advisory Facet Wealth.

“If you don’t teach kids at a young age, you can’t expect them to grow up to be financially responsible.”

Neale Godfrey, founder of Children’s Financial Network

Separating Needs and Wants

As parents learn early on, kids have a tendency to think they need every item that catches their eye, whether it’s a giant playset or a lunch box advertising their favorite cartoon. But if you want your kids to avoid dangerous spending habits later in life, you have to teach them that they can’t have it all. As the 47 percent of Americans with credit card debt can attest, learning that lesson is easier said than done.

Eaton says that performing simple, hands-on activities when your kids are still young can help them learn the critical distinction between needs and wants.

“Explain that money pays for both needs and wants,” Eaton, the author of the children’s financial literacy book Money Plan says. “Because money is a limited resource, needs come first.”

Teaching Needs and Wants

Start with the Basics

Collect a variety of different items from around your home, from articles of clothing and toys to personal items. Have your child call out whether each item is a must-have or a wanna-have.

Have a Deeper Conversation

Ask your child whether food is a need or a want. Then ask them which category a particular fast food restaurant would fit into. Soon, you’re having a conversation about what’s an actual necessity and what’s a luxury, a distinction that’s key to healthy spending habits.

Put It into Practice

Make it clear that you will pay for things your child needs (e.g. clothing) but not everything they want (e.g. designer jeans). If your kids want to spend their money on wants, Godfrey says, “It’s perfectly okay for them to earn the money to buy that themselves.”

Learning the Value of a Dollar

When kids still cling to the fantasy that mom and dad have a limitless supply of cash, the concept of saying no to a purchase is utterly foreign. If your last name is Bezos, that’s probably not a big deal. For everybody else, teaching children the finite nature of money can help prepare them for adulthood—and potentially save you from a lot of nagging in the short run.

One of the best financial lessons you can give your child is a sense of how much things cost, both in terms of the price tag and how much work goes into acquiring those dollars. Again, Eaton recommends turning it into a game to get kids interested. Take them along with you to a grocery store and give them a list of different items to purchase, but make sure they stick to a budget of around $10. Pretty soon they’ll be paying more attention to the cost of various items and prioritizing what ends up in your cart.

As your kids get a little older, you can expand that exercise into other purchasing decisions, nudging them to become informed consumers. Whether you compensate them for chores or hand out a weekly allowance, the key is to make your son or daughter pay for “want” items using their own supply of funds.

By having to work within those guardrails, kids are learning what it means to have a budget and determine how much they truly value different items or experiences. When kids know that a new video game will drain their account, for example, they may end up deciding to stick with what they have or buy a less expensive, used version. “They have to figure out if it’s worth it or not,” says Godfrey.

Illuminating the Importance of Saving

The sudden Covid-induced recession last year was a reminder of how precarious the financial health of many adults truly is. According to a Federal Reserve study conducted last November, 45 percent of laid-off workers were unable to pay their monthly bills or wouldn’t have been able to if faced with an unexpected $400 expense. In other words, the crisis exposed just how serious America’s savings problem really is.

So how do you get kids to understand the concept of delayed gratification—to put aside some of what they make now so they’re able to handle future needs? Eaton’s preferred method is to create a savings goal with your child and keep them focused on it. Have them select a product or experience they’d really like and help them research how much it costs. You can even create a “goal poster” with a picture of the item, its price, and an indication of how much progress your kid has made toward purchasing it.

“Talk about ways your child can earn money by completing chores around the house,” suggests Eaton. “Each ‘payday’ lets your child choose the amount of money they would like to put towards the purchase of their goal item.”

Godfrey recommends a slightly different approach: automating their savings so a portion of everything they earn is untouchable in the short-term. It could be as simple as creating different jars for spending and savings, although separating funds is considerably easier if you’re paying your kids through a family-friendly app like Greenlight, a debit card for kids and teens that can also be a valuable teaching tool for parents.

For instance, Greenlight users can transfer a fixed percentage of the child’s allowance to their “Spend Anywhere” balance and another portion to their “General Savings.” Parents can even divert part of their payment to the “Give” category, teaching them to set aside a portion of their income for their favorite charity.

Sponsored by Greenlight
A Debit Card for Kids and Teens

Greenlight’s mission is to shine a light on the world of money for families and empower parents to raise financially-smart kids. Every child should have the opportunity to become financially healthy and happy, and a Greenlight debit card can help.

Opening a Bank Account or Debit Card

When kids are first grasping the concept of money, keeping a piggy bank on their dresser can be a great way to teach them the value of savings. As they get a little older, however, they’re probably ready for something a little more sophisticated

Putting money into a federally-insured savings or debit card account can help them understand the important role of bank products in keeping their money safe and enabling it to earn interest. Plus, these accounts keep them tuned into their financial progress (or lack thereof) in a way that a porcelain bank can’t. Kids can see exactly how much they have every time they log in, which provides immediate feedback any time they put money in or pull money out.

By the time kids reach middle school and high school, they are eager to assert their independence, says Ahmed. Managing their own account is a natural way for them to take greater ownership of their financial life. “It’s where they can forge their own identity,” he says.

Child-friendly debit cards have the added benefit of allowing kids to easily purchase items in-person or online using their own money, which forces them to make important choices about how to use their funds. And parents can pay them an allowance or chore money right from their app, eliminating the need to search for coins under the couch every time they have to pony up.

Debit cards can also make it easier for kids to understand the upside of holding onto their money. For example, Greenlight’s parent-paid interest feature helps kids grow their balances over time. In addition, the card enables users to set specific savings goals for which they can track their progress right from the app.

Teaching that Money Can Grow

Being a smart investor isn’t just for folks trying to beat the markets through clever trades—it’s how the majority of kids will one day have to fund their retirement and other long-term goals. Teaching kids the potential rewards, as well as the inherent risks, of investing can help ensure they make wise decisions when they’re older and the stakes are considerably higher.

You can introduce kids to that idea by going online and following a company that they love. If they’re techies, Apple’s stock might be a natural choice. Have a fashionista in your household? Have them track Gap Inc. Encourage your child to read about the company in the news and connect those events to its share price.

Once they understand the basics of how stocks work, they might be ready to purchase actual shares with some of their savings. Greenlight makes it easy for kids to have that initial exposure to the market under an adult’s watchful eye. It recommends funds that they can invest in, and they can also research and buy ETFs and fractional shares of companies big and small, though parents have to approve trades beforehand.

One of the things kids will likely notice very soon is that share prices don’t always go up. For Ahmed, it’s all part of the learning process. “They have to understand that there are consequences to their decisions,” he says.

Because individual stocks tend to be more volatile than the market as a whole, it’s also a good way to explain how diversification can help lower their risk. Quiz them on what the characteristics of their portfolio are and brainstorm other investments that could help them balance their risk. Examples could include ETFs that tracks a sector your kid isn’t invested in or stocks in companies that primarily operate internationally if their investments are largely domestic.

By the time they enter the workforce and have to plan for their future, those lessons will undoubtedly come in handy. “They’ll figure out that instead of keeping money in a checking account, they can put it somewhere that it can grow,” says Ahmed.