Paula Thielen is the managing partner and financial advisor at Thielen & Associates, Inc.
We have all seen the viral videos: A mother wakes up to several Amazon packages at her front door and checks her account only to find her child ordered $2,000 worth of toys when he was using her phone. As an outside viewer, this may make you laugh, but as a financial advisor, I worry about the next generation’s financial knowledge in the digital age.
Budgeting and finance have changed drastically in the last 20 years, and simply giving a child a weekly allowance for household chores can leave them unprepared for their future financial responsibilities. It is important to explain money management thoroughly from an early age. Let’s walk through some tips on how and when you can introduce these concepts.
Early Childhood: Ages 6-10
Teaching your kids fiscal responsibility at an early age can have many lasting benefits. During this time, your child is being taught basic arithmetic at school, and introducing them to money management can naturally reinforce these skills while also forming the correlation between numbers and real money. By giving them a small, regular cash allowance and encouraging them to spend their allowance on snacks, candy and small items, they can both learn the value of money and understand the importance of saving and spending wisely.
As they near their preteen years, it is advised to open the conversation about your personal finances and household finances, explaining to them what you are saving for, what you spend your money on and the concept of digital money and online payments. This introduction to your personal banking will lay a foundation for the next phase of their financial education.
Preteens: Ages 10-14
The preteen years are a crucial and formative time to begin introducing more complex financial and budgeting conversations. During this time, opening a joint debit account for your child will allow them to experience managing money digitally, an important lesson in today’s economy.
At this point, you can move their allowance from a small cash sum to a slightly larger digital amount, depositing it into their checking account on a consistent schedule, similar to receiving a paycheck. With their new debit card, it is important to have in-depth conversations about online shopping, subscription services and digital transactions. With their growing independence and larger allowance, encourage them to manage medium-sized purchases like video games, electronics or trendy items that they see on social media or at school.
If they are interested in a large purchase, you can introduce the concept of interest-free loans to give them a chance to understand borrowing and repayment. Communication is the most important part of this step, as they are not just learning that they have money but also where it goes and why.
Teenagers: Age 14-18
Continuing to teach fiscal responsibility into your child’s teenage years is crucial as they approach adulthood and face bigger financial situations. High schools across the country, including California, Ohio and Utah, are providing mandatory financial literacy classes, covering essential topics like saving, budgeting and investing. It is important to talk to your child about what they are learning in those classes, elaborating on the topics and relating them to personal financial experiences that you have encountered.
To build on this education, you can start introducing money-sharing apps, allowing your teenager to manage their transactions between their friends and better understand digital payments. Budgeting apps and income management tools can help them manage their income from part-time jobs or allowances, adding a level of planning.
The teenage years are also the ideal time to introduce the concept of credit cards and interest-bearing loans. As they begin planning for life after high school, whether that be continuing their education or independent life outside of their childhood home, it is important to thoroughly teach them how interest works, the concept of fixed payments and how not everything is the same price as it shows on the sticker.
This is also a great opportunity to encourage big purchases like a car, laptop or saving for college. One of the most impactful things you can do for your child is to guide them through financial decisions, helping them understand the importance of long-term financial planning and responsible borrowing.
Final Thoughts
It is important to recognize how much banking and financial systems have changed over the years, especially with the shift toward digital money. Teaching kids about finances today requires a different and more thorough approach than in the past, as there are so many ways to spend, manage and share money online.
While these advancements in financial technology are essential and useful in our daily lives, they also add an extra layer of complexity when introducing finances to your children. Many of my clients have successfully raised fiscally responsible children by starting early with simple lessons. They encourage savings by matching part of their kids’ allowance if it’s saved rather than spent.
Some involve their teens in budgeting for family expenses, teaching them the importance of planning. Others set up investment accounts for their kids and walk them through the basics of investing. Several families also emphasize the value of charitable giving, helping their children understand financial responsibility extends to helping others. Finding ways to incorporate your children into your financial processes is the best way to help them understand financial responsibility as children and into adulthood.
This material was created by Thielen & Associates, Inc. for use by Forbes and does not represent the views and opinions of Avantax Wealth Management or its subsidiaries. The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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