How to Teach Kids—and Grandkids—to Build Healthy Money and Credit Habits

Andrew Weber is a senior director of Planning Philosophy, Research and Guidance at Northwestern Mutual.

From their first wobbly attempts at riding a bicycle to their discomfort of navigating how to resolve a disagreement with a friend, children naturally turn to their parents for guidance. Learning how to manage money is no different but it can be daunting to explain the best ways to go about it.

The good news is that 29 states now have financial literacy high school graduation requirements. But there’s plenty you can do at home to reinforce their financial education—and help set your children and grandchildren up for a bright future.

The earlier kids learn key financial concepts, the better prepared they’ll be to eventually navigate their own financial lives. If you’re wondering how to teach kids about money and credit, consider these simple tips.

For kids in elementary school

• Understanding financial basics
• Learning the difference between saving vs. instant gratification
• Making choices and trade-offs

1. Model financial wellness

To engage your little ones, start small by showing them how your budget keeps your household running. It’s a great opportunity to illustrate how money comes in and money goes out. Where does that money go? Showing them what the family budget pays for can help make these concepts more concrete for them. Tying it to kid-related expenses, like fees for their extracurricular activities, can drive the point home.

If you have a big-ticket purchase coming up, such as a family vacation or new TV, it could be a great opportunity to teach your kids about credit cards. For example, you can explain that you’re using one to pay for some or all of the purchase—and that failing to pay the entire balance will trigger interest charges. Keep the language simple. The idea is to model how to use a credit card responsibly.

You can make it fun by playing games that teach kids core financial concepts on sites or apps like:

• Bankaroo
• Savings Spree
• Peter Pig’s Money Counter

Also be sure to periodically check your child’s credit file. Most minors shouldn’t have a credit report unless you’ve added them as an authorized user on one of your accounts. Otherwise, finding a credit report in their name is a red flag for identity theft.

2. Provide opportunities to earn money

Making their own money can help children understand the value of a dollar—and give them a preview of how it’ll feel to eventually earn a paycheck and manage their spending. If you like the idea of your kids earning an allowance, the following chores might be a good starting point:

• Unloading the dishwasher
• Washing the car
• Raking leaves
• Folding and sorting the laundry
• “Babysitting” a younger sibling (for example, playing with them while you’re cooking dinner or working from home)
• Helping a sibling study

How much you pay them is up to you and may depend on how old they are. For example, they might earn $1 per week based on their age—so a 10-year-old would have the chance to earn $10 per week. Establishing a weekly payday can help keep them motivated.

3. Set up a system for managing their funds

The “spend, save, give” rule can come in handy here. Every time your kids get paid, encourage them to spend a portion, save a portion for a long-term goal, and give some away to a charity of their choosing.

If that stretches their earnings too thin, you can invite your kids into decision-making around charitable giving. Choose a monthly donation amount together, add it to your budget, then let your kids choose a different non-profit or cause each month. If possible, show them what their donations are helping to fund.

4. Hold their money for them

This isn’t just for safekeeping. Holding your child’s money can provide an opportunity to show them how their cash is adding up—literally. There are popular piggy banks that have separate compartments labeled for spending, saving and giving. Another option is to label three different envelopes so they can sort their cash accordingly. These options allow kids to see where their money is going, which can help bring financial lessons to life.

5. Visualize saving and goal setting

Words may feel abstract to a school-aged child, but visual aids can be helpful when teaching them about the value of saving. Let’s say they want a popular new game that costs $20, and they currently earn $8 a week from their allowance. You could use a whiteboard to show how many weeks it will take them to save the full amount and make the purchase. Tracking their progress together also allows you to celebrate milestones along the way to keep them motivated.

For middle school kids

• Understanding that borrowing money now means having to pay more in the long run
• The value of shopping around and comparing prices

1. Sign them up for their own debit card

By this age, you may notice your kiddo seeking more independence. Trips to the playground might be replaced by meetups at the mall or movie theater. Instead ofcarrying cash, they might prefer their own debit card. This is a safer, more convenient option that can even be added to the virtual wallet on their phone.

It begins with opening a checking account, which is technically owned by the parent or guardian. Most are linked to an app that allows both the child and parent to monitor the account balance. Parents can easily transfer funds into the account as needed. Other safeguards may be available, like the ability to view your child’s spending and even limit how much they spend.Your middle schooler is also limited to the available balance, which can help teach them how to make their money last.

2. Let them take out a loan from you

Let’s say your child wants to buy an expensive video game. If they don’t have the funds to pay for it right now, you could offer to lend them the money—but with interest. This can teach them how credit and lending works. They can either have the item today and pay more for it over time, or they can be patient and buy it at cost in the future. Crunch the numbers to show them how the interest can compound.

If they decide to move forward with a loan, draw up a simple, kid-friendly contract that outlines the repayment details. This includes how much their payments will be, when they’ll make them, and what fees they’ll encounter for paying late. (Yes, you can impose late fees!) If they default on the loan, you can repossess the game.

3. Encourage comparison shopping

Shopping around for the best value can help your child’s money go a little further. Here are some simple hacks that are worth sharing with them:

• Online prices may be cheaper, but that may not include the hidden cost of shipping.
• Every retailer is different. Compare prices, factoring in any sales or discounts that may be available.
• Buying in bulk and spending more upfront might save you money in the long run.
• Always do your research and read customer reviews. Cheaper isn’t always better, especially if it means sacrificing quality.

For high schoolers

• Learning real-life budgeting skills and why building strong credit is important
• Covering the basics of investing and the power of compound interest

1. Open a teen checking account

These accounts are often geared toward 13- to 17-year-olds and provide greater financial autonomy, like access to direct deposit and online bill pay. Your child will still have their own debit card and be able to make transactions as they please. Mobile banking also allows them to track their spending and account activity.

Teen checking accounts can help older kids learn the ropes when it comes to banking. A parent will likely remain a co-owner until the child turns 18, though some banks allow teens to own the account themselves at 16 or 17.

2. Add them as an authorized user on one of your credit cards

When you feel your child is ready to begin using credit, you can consider adding them as an authorized user on one of your accounts. This is one of the best ways to establish their credit history. Just keep in mind that policies, such as minimum age requirements, vary from creditor to creditor.

Also be aware that you’ll be the one responsible for paying the bill. Whatever charges your teen makes each month, the expectation should be that they’ll pay you that amount when the bill comes due. If they accumulate debt that takes you by surprise, you’ll be on the hook for paying it back. On the flip side, if you miss a payment, that could impact their credit.

3. Explain the basics of investing

Investing is a core financial concept that can help your child grow their wealth as an adult. Parents are able to open an account for minors and invest money on their behalf. The child is the beneficial owner and can take ownership of the account when they are old enough. (Keep in mind that is determined by individual state rules.) Opening up an account where you can invest the savings portion is a great way to give your child a head start.

Once they have their own income, you can start teaching them how retirement accounts work. That includes 401(k)s and Roth IRAs. Retirement may seem like a lifetime away, but you can use an online compound interest calculator to show how even small contributions can add up to serious wealth over time.

Introduce them to your financial advisor

Teaching kids about money and managing family finances can be tricky, but it isn’t something you have to do alone. Talk with your Northwestern Mutual financial advisor to make a plan that’s tailored to your family’s unique needs and goals.