5 Money Principles Every Kid Should Know

Parents, I’ve got some good news and some bad news for you…

The good news? Your children — from a very early age — have access to a financial advisor who can guide and steer them in the right direction and teach them the key money principles they’ll need to know when entering the real world.

The bad news? That financial advisor is you.

Now, if you’ve got your act together, then that’s not bad news at all. But if you don’t, the thought of your kids following in your financial footsteps may terrify you just a little. If you fall in the latter camp, I’ve got some more good news for you…handling your money less-than-perfectly does not disqualify you from teaching your children about money. And…it’s NEVER too late to be intentional about what you model and teach your children.

Note the emphasis on intentional — both literally and figuratively.

5 Money Principles Every Kid Should Know

There are five money concepts that we, as parents, should make sure our children understand. If we keep these principles in mind, try to model them as much as possible, and look for everyday moments to teach and illustrate them, then we can confidently send our kids into the real world without worrying they’ll screw up with money. (Or at least without worrying that they’ll screw up with money and then blame us!) 😂

Here are the five money principles every kid should know:

1. Earning

Before kids can learn how to manage their money well, they need to have an understanding of where money comes from.

A while ago, I interviewed several children ranging in ages from 5 to 18 about money. One question I asked was, “Where does money come from?” Most of the answers I received were versions of “the bank” or “a mint,” but it was a five-year-old who got it right and answered, “Work!”

Depending on the ages of your children, they most likely see you as their source of financial support. But do they understand where you get money from? Don’t take it for granted that they do. We need to make sure our children make the connection between work and money. We can do this by providing age-appropriate opportunities for them to earn money.

Even toddlers can grasp the concept of performing a simple task in exchange for a monetary reward. Older children and teens can (and should) have the opportunity to earn money both in and outside the home.

So, identify some jobs or chores your children can earn money for. We’re not talking about paying your child every time they lift a finger. No, all children should carry some responsibilities just because they are members of your household. But they also need to know that money comes from work and should be given opportunities to earn their own money.

Additional Reading: 4 Tools For Raising Money-Smart Kids

2. Saving + investing

Ahh saving…a discipline that is hard for us as adults to master, but one that is oh-so-necessary to conquer. And it is just that — a discipline. Learning to designate a portion of your income for saving and investing or waiting until you have the money to make a large purchase is H-A-R-D. But the more our kids develop the habit of saving, the easier it becomes.

This is one area where I think children may have an advantage over us adults when it comes to learning and implementing these money principles. If they learn and exercise the habit of always saving a portion of their earnings before they enter the real world and make real money, then they won’t have to unlearn spending every dollar they earn (and then some).

Again, we have to be intentional about teaching kids to save, because it won’t come naturally for most. Another question I asked the kids I interviewed was what they would do if they wanted to purchase something but didn’t have enough money. I was impressed by a few of the answers like, “I would wait and save,” or “I wouldn’t buy it.” But guess how the majority of the kids answered? Yup, they would turn to the good ole “Bank of Mom and Dad.”

So we have to help our children practice the money principle of saving. Guide your kids to set aside a portion of everything they earn. The savings can be towards a future purchase or simply to hold onto. As they age, they will be able to grasp the concepts of saving for emergencies and other goals. Introduce older children to the “magical” concept of compound interest.

Through learning how to save, your children will also learn how to set goals, exercise self-control, weigh decisions, and delay gratification.

Additional Reading: What Kids Think About Money

3. Spending

Now chances are you don’t have to teach your children that money is for spending. Kids are born knowing that. But they do need to be guided in spending wisely and intentionally.

For young kids that may mean encouraging them not to spend their money impulsively on the first item they see, and for teens that could mean showing them how to budget, so they have money for the purchases that are important to them.

This guidance does need to come with the room and freedom to make mistakes. Our kids will make mistakes with money…and they will learn from them. If your nine-year-old runs out of money and can’t buy the item he “really, really” wants or your teenager has to miss going to a concert because she spent all her money eating out, they will learn.

Be sure your children develop a healthy approach to spending. Spending is fun, and spending is okay. It’s overspending and overindulging that’s problematic. Our model and instruction should reflect as much.

Additional Reading: 3 Money Lessons I Want My Kids to Learn from Me

4. Borrowing

One of the reasons I ran into trouble with debt at an early age is because I didn’t understand how credit works. I think it’s easy for us as adults to assume our kids understand a particular concept that is clear to us, but we would be wrong.

One of the kids I interviewed described credit cards as “free money!” That is exactly how I treated credit when I first started interacting with it and how many other young adults do. I don’t advocate debt, but I do believe our children should know how it works.

Make sure your children understand that credit card usage is a form of borrowing and that when using credit cards, they are using the bank’s money with the promise to repay. Let them know how student loans, car loans, and mortgages work.

Explain to your kids how interest works. As an example, show them that if they borrow $1, they have to pay back $1.10. And if they don’t pay on time, explain that late fees and additional interest could mean paying back A LOT more than what was initially borrowed. Older kids, of course, can grasp the concept with larger numbers.

The idea is to make sure your children understand that credit is not free money. Borrowed money needs to be repaid. And debt comes with a cost — one that could be avoided by waiting and saving.

Additional Reading: Additional Reading: 5 Money Books Every Teen Should Read

5. Giving

Last but certainly not least is giving. Children need to learn that giving and generosity should be a priority right along with saving and spending wisely. And depending on your faith, being generous with your resources may be tied to your beliefs.

When I was a child, every Sunday as I walked into children’s church, my mother would thrust a dollar bill into my hand for the offering. And every week I dropped that crumpled dollar in the bag as it passed.

Now while my mother’s intentions were good in encouraging me to give, that routine didn’t actually teach me how to give. I was simply the middleman between my mom’s dollar and the offering bag. I neither earned that dollar nor gave it, and as a result, did not internalize those acts of giving.

So, be sure your children learn to give from their own money. Have them regularly set aside a portion of their earnings for giving and help them identify opportunities to give, volunteer, and demonstrate generosity in general.

And of course, model it. If your children see you giving, not only of your money but also of your time, talents, and skills, they will learn to give too.

It’s never too late to teach healthy money principles

If you’ve been less-than-perfect in demonstrating these money principles for your children, you are not alone! No one is perfect with this money stuff. In fact, being open with your kids about some of your money mistakes and regrets can serve as lessons for them!

And as you actively start teaching these principles, you’ll be reinforcing and improving them for yourself.

It’s never too late to put your kids on the right path. Choose to become more intentional about modeling and making these money principles a part of your family conversation today. In doing so, you will establish a healthy foundation for your children and set them up for money success!