Building a foundation of financial literacy starting from a young age is key to setting your child up for financial success. The question is how do we do it? Especially if we did not come from a home that taught us to be financially literate.

What is financial literacy? Financial literacy is a skillset founded on knowledge that equips people to make informed decisions about their money. This is not about having the most money or having a confining budget. This is about having a healthy relationship with your finances, creating a fulfilling experience with using your money.

Research suggests that many financial habits are formed by the age of 9. Learning these skills is so formative for helping your child develop positive attitudes and habits towards money. Starting to instill these skills as early as you can is the most psychologically beneficial thing you can do for your kids.

Saving

The first practical tool is teaching your child to save for something they really want. Instilling some “skin in the game” or financial responsibility will teach the child that what you do with your money matters. Help your child plan for how much the item they want costs and how they’re going to achieve saving that amount. Teaching children delayed gratification builds character qualities like patience and learning to be content with what you have. It is important they know that adults also save for items they want, or bigger purchases like a home or a family vacation.

Practicing Managing Money

Hands on experience is always a great way to learn and become confident in that skill. It can be a fun experience for you and your child to go to a coffee shop and have them practice paying for a coffee and treat. You can also set savings goals together, set up a savings account, and teach them to allocate certain portions of their earnings to savings and spending. Practical ways to give agency to your kids is through a weekly allowance as they complete chores or for Christmas or birthday gifts.. It is healthy for a child to learn that earning and saving is linked to work. For children, they can help with the laundry, the dishes, the garden, or even helping neighbors with household tasks.

Be The Example

This last tool might be the most important. Children mirror what they see, and that means they will learn how to handle money and think about money from the perspective of their caretakers. Work on yourself to develop healthy money management and invite your children into open conversations about why certain decisions are made. Involve your children in financial activities, and the process of deciding what to purchase. Teach them about finding discounts, buying secondhand, and comparing prices. For older children, you can begin to teach them about investment accounts and the power of compound interest.

Equipping children with financial literacy is essential for their financial well-being throughout their lives. Nurturing your children financially with tools and dialogue, will help them develop strong money management skills that they can continue to pass on.

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