Why Teaching Kids About Finances is Important

May 15, 2018 by

Money is a big topic for all of us, especially as we move into adulthood and start investing in our futures. Many of us also wish we had been taught better about money and how best to handle it when we were children. The truth is, the younger children start understanding money and how to make it work for them rather than working for it, the better off they will be.

How do we do that though? What do we teach kids and when? Here are a few things we can consider that explain why teaching kids about finances is important.

Patience and Saving

We live in a society that values instant gratification, and our children often see that in our behavior, the way things are advertised to them, and what their friends have. It is often hard for them to understand the value of patience and saving up for what they want or even need.

The idea of credit is often sprung on them at a young age, and it makes it harder to emphasize waiting for the right deal when you have the money to pay for something outright. Teaching this is important, especially for items that do not increase in value over time, but actually depreciate.

For instance, the impetus is to purchase the newest gaming system or even game as soon as it becomes available. A wiser financial move is to wait or to use cash, and teaching children this value sets them up for financial freedom without debt going forward.

Wants vs. Needs

One of the other learns children need to go through is to understand the difference between wants and needs. While one might want the newest gaming system, a more pressing need might be a way to get back and forth to work, so saving towards a car or even just saving gas money is a higher priority.

This also applies within categories. The latest iPhone is a want, but a phone might be a need, so an older model might have to do until they have earned more money to buy the latest and greatest. A phone may be a need and a fancy phone with tons of features is the want.

This is an important distinction for us to model as well. Our children more often imitate than listen to what we say, so if we demonstrate the prioritization of needs over wants, they will do the same.


Credit can be important, and one of the reasons is that emergencies come up. From car and home repairs to medical needs or family emergencies, sometimes you need extra cash, and if you don’t have it, you will need to be able to borrow it.

Whether this means using a credit card or taking out a short term personal loan, it is often worthwhile to teach our children about emergency borrowing and what it means to our budgets. If you have to borrow, let them know what you are doing, and show them the interest you pay, and why using credit irresponsibly is harmful.

At the same time, teach them the benefits of emergency borrowing, and how it can help meet everyday needs as opposed to wants when you are short on cash or between pay periods.


College costs a lot of money, and while kids understand this from a young age, they also need to understand that there are ways to cover those costs without going into more debt than necessary. Teaching them this even before they enter high school and are forced to face the looming reality will help them develop a healthy attitude toward paying for that education.

There are a few things you can mention early on:

  • Savings: Many states have good savings plans for colleges, and they often earn well and save you on taxes. Talk to your kids about your contributions realistically and what they need to start saving even when they are young.
  • Scholarships: Whether kids are academically talented or good at sports or music, there are scholarships available for them at different colleges and universities. Encourage them to embrace passions if nothing more than as a way to help pay for college.
  • Grants: There are grants available for school, and they are not all income based. Since these do not have to be paid back, they are a great way to pay for school.
  • Loans: Sometimes if the payoff of education is worth it, going into debt makes sense. Just make sure kids understand the value of keeping this to a minimum.

The more your kids understand the finances of education and why it is important, the better decisions they will be able to make when the time comes.

The Retirement Talk

Seem premature? Not at all. Even before your kids start to work, they need to understand that someday, they are going to want to stop working or may be forced to by health issues and concerns. This is a good time to use grandparents and other, older adults as an example.

There is a caution here. Try not to emphasize poor examples of those who do not have enough retirement savings. Instead, give good examples as well. Point out to your children those who planned and are doing well. This shows them both sides of the coin so the consequences of either choice are emphasized.

Teaching kids about the realities of finances early is important. It sets them up for habits that will follow them for their entire lives. More often than not they follow our examples, so we must lead by doing the right thing ourselves and let them know when we struggle because of bad choices.

A good dose of reality with some encouragement toward doing the right thing will go a long way toward shaping the financial future of the next generation.

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