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How to Raise Financially Responsible Children

We all know the old saying that goes "Money doesn't grow on trees," but that doesn't mean you shouldn't plant financial roots to help teach children to save money and understand why fiscal responsibility is important both now and in the future.

According to a recent study, more than 70 percent of parents are not discussing money with their children, with most of them citing "fear" as the primary detractor to the conversation. But financial literacy for kids doesn't have to be a scary subject. You can start early and build layers from there, ensuring that money doesn't have to be a taboo subject.

If you're unsure where to start, many community-focused credit unions and banks offer child-focused savings programs and interactive activities that can answer the question of how to teach your child the value of a dollar.

Here are some tips and tricks for raising financially responsible children:

Have an open conversation

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Parents should be willing and open to discussing money with their children, starting at an early age. Don't view budgeting for kids as a chore. Helping to demystify money goes a long way to ensuring good financial habits. Children may ask parents, "Why is it important to know about money?" You can explain to them, in positive terms, about how money helps the family achieve household goals or be able to go on vacation. Experts suggest setting aside one day every month in which the family's finances are discussed and how everyone can contribute.

Teach them how to save

Saving money is a critical financial habit to install in children as early as possible. A piggy bank is a way to start the habit early. Your kids will enjoy placing coins in the bank, and believe it or not, this kind of behavior gets engrained to the point that savings will become a natural thing by the time they head off to college.

Open a children's savings account

Most financial institutions have special accounts for children to help teach them about savings. You will have joint ownership on your child's savings account, allowing you to monitor and manage the money inside. To open the account, you'll need your driver's license and Social Security number in addition to your child's birthdate and Social Security number. Some credit unions and banks may require school ID or another official record for your child

Most child savings accounts have no monthly fees, but some do require a minimal deposit such as $25 to open the account. For older children, you can sign them up for the bank's mobile app, giving them a login and password that allows them to access the account. And while most banking is done online, it's also a good lesson to bring them into a branch and learn how to use the teller to make deposits so they are comfortable in that environment.

Practice the give-save-spend method

A give-save-spend bank is a great way for older kids to think a combination of financial elements. Any money your children get should be categorized in three ways:

  • Give: They can set aside a portion of money they would like to donate to a charity or cause.
  • Save: Use this portion of the money for long-term savings, like a college fund or to help with a down payment on their first car. 
  • Spend: If they have something in mind to purchase, they can put a slice of the money into this pile, creating a short-term savings goal.

Parents can assist their children in dividing up the allocations, and this way, money isn't spent as quickly as it is received.

Explain interest

Even the most financially savvy parents may have trouble with how to explain interest to a kid in a way that makes sense. Some simple suggestions to help simplify the concept include:

  • Interest rewards: You can explain to your child that for every dollar they save, you will give them an extra quarter in interest per month. This may spur your child to save more.
  • Loan lesson: To help understand the concept of borrowing money, you can take a loan from your child and then pay them back with a little extra attached as interest, telling them that is the cost of borrowing funds from a lender.
  • Check the account: If you've opened a kids savings account, look at the monthly statement and show them how much interest has accrued – with the percentage rate, they can figure out how much interest they may make over a year.

Are there other ways to teach kids about financial capability?

Some children's savings accounts also include access to financial literacy programs to help teach children to save. Activities that mix fun with education can help make complex financial issues easier to understand and appreciate. These programs can give kids a first-hand look at:

  • Budgeting
  • Expenses
  • Insurance
  • Credit Cards

The personal, community-first environment at a credit union can also be key to helping young people learn about finance. Employees who have been in the industry for years are more willing to share their experience, advice and tips to fellow members, even the smallest ones. No matter what strategies you use, make sure you keep your kids in the loop about money, because it will pay dividends later in life.
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