How to Teach Children to Build Healthy Money and Credit Habits

Of the many life skills you will teach your children, how to manage finances fits somewhere between learning how to ride a bike and getting a driver’s license. And it’s very likely that the responsibility will fall to you, as only 14 states require high school students to take at least one semester of personal finance.

The earlier that kids learn some key financial concepts, the better prepared they’ll be to eventually navigate their own financial lives — and credit health will be a key pillar of their financial wellness. Here are some ways to help your children learn how to build healthy money and credit habits as they grow.

Elementary school

1. Model financial wellness

Understanding financial basics is the first step toward establishing healthy money habits. To engage your little ones, start small by showing your kids 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 (groceries, mortgage, internet) can help make these concepts more concrete for them.

If you have a big-ticket purchase coming up, like a family vacation, you can teach your kids how a credit card works by explaining that you’re using one to purchase your flights, and how if you don’t pay the entire balance, you’ll have to pay even more money because you’ll be charged interest.

A fun way to engage young children is through games and apps on sites such as Bankaroo and Goalsetter, which focus on teaching kids core financial concepts. 

2. Provide opportunities to earn money

Making their own money can help children understand the value of a dollar better and give them a preview of how it’ll feel to eventually earn a paycheck and manage their spending.

Not all families may agree on the rules around earning an allowance, but if you think it may be right for your kids, consider letting them earn money for things like:

• Washing the car
• Raking leaves
• Folding and sorting the laundry
• Babysitting a younger sibling (for example, playing with them while you cook dinner)
• Helping a sibling study

How much you pay them is up to you and can depend on how much work they’re doing. 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. There are even popular piggy banks that have separate compartments printed with each goal.

If that stretches their earnings too thin, you can simply incorporate your kids into the decision making around charitable giving. Choose a monthly donation amount together, add it to your budget, then let your kids pick a different non-profit each month.

Middle school

1. Introduce a prepaid card

By the time they reach middle school, many kids will be seeking more independence from their parents. Playdates at the playground will be replaced by meetups at the mall or movie theater. These activities can motivate your middle schooler to want to earn their own money.

If they are old enough to qualify, consider setting up a prepaid card for them. You might choose to preload it with a set amount of money or reload it as you go. Either way, once your child hits a set balance, the money is gone. And since they’re limited to the active balance, they’ll have to learn to make their money last.

2. Let them take out a loan from you

Let’s say your middle schooler wants to buy an expensive video game. If they don’t have the funds to pay for it right now, you could offer to front the money for them — but with interest. Doing so 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 and how much more have they’d have to pay over time.

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. If they default altogether, you can repossess the game.

High school

1. Open a checking account for them

A checking account can give your teenager greater financial autonomy. They’ll receive their own debit card and be able to make transactions as they please. Mobile banking allows them to track their spending and account activity. Another perk is that many teen accounts have no account minimums.

But there are usually guardrails in place. Some banks allow parents to use an app that allows them to see their child’s spending and even lock their debit card. Parents can also automatically deposit their teen’s allowance. Teen checking accounts are a good steppingstone to building a strong financial foundation.

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. Although this is one of the best ways to establish their credit history, it does have its pros and cons — namely, your credit histories are now connected, for better or worse. And keep in mind that policies, such as a minimum age requirement, vary from creditor to creditor.

It's also important to remember that you’ll still 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 rack up debt that takes you by surprise, you’ll be on the hook for paying it back. The reverse is also true: If you miss a payment, that could impact their credit.