Children’s Financial Literacy

Your children’s financial literacy starts with you. By teaching them to form good money habits when they are young, you will set them up for success later on.
Advertising Disclosure.

Advertiser Disclosure: Opinions, reviews, analyses & recommendations are the author’s alone. This article may contain links from our advertisers. For more information, please see our Advertising Policy.

Children’s Financial Literacy
Table of Contents
  1. 1. There is a Difference Between Needs and Wants
  2. 2. There is Never Going to Be Enough Money to Buy Everything
  3. 3. Money is Earned, Not Given
  4. More Ways to Teach Your Children Financial Lessons
    1. Set a good example
    2. Allow children to manage their own money
    3. Let them make mistakes
    4. Set goals
    5. Teach the difference between debit and credit
    6. Talk about retirement
  5. Start Your Children on the Right Financial Path

Disclosure: This article is sponsored by Navy Mutual, a non-profit, Veterans Service Organization (VSO).

Your children’s financial literacy starts with you. By teaching them to form good money habits when they are young, you will set them up for success later on. No matter what ages your children are, you can instill lessons about finances and money management that are relevant to them.

There are three main lessons that are important to convey to your children that will help them on the road toward financial literacy:

1. There is a Difference Between Needs and Wants

As an adult, it is easy to compartmentalize your budget into the items that you need to pay for, like your mortgage or rent, utilities, and food, and the items that you want to pay for, like date nights, a new pair of boots, or a family vacation. For children, it’s not as easy.

Introduce the concept of budgeting to them by talking about the differences between needs and wants. They need to have a place to sleep at night, but they want to sleep in bunk beds. They need to eat green beans at dinner, but they want to skip straight to dessert. The grocery store can be a good place to reinforce this concept; as you are shopping, ask your children if the items you are putting into your cart are needs or wants, then explain how they are right or wrong.

2. There is Never Going to Be Enough Money to Buy Everything

When everything is provided to them, it makes sense that children can develop the idea that money grows on trees. Teaching them from a young age that just because they want something does not always mean that they can get it will help them make smarter financial decisions later in life. The concept of an “opportunity cost” drives this home.

When your child has a finite amount of money and two purchases to choose from, they must choose one purchase at the expense of the other; they cannot have both at the same time. This concept is easier to teach when your child understands how money works and might be earning an allowance to make purchases of their own.

3. Money is Earned, Not Given

By stressing the fact that money is something that needs to be earned when your children are young, you not only set them up to be financially literate, but you also begin instilling a good work ethic in them.

Instead of simply giving your children an allowance each week, consider giving them a list of chores that much be done, and base their allowances off of how much they accomplish. For example, each time the dishwasher gets emptied, beds get made, or toys get put away, they can earn money. At the end of the week, they get their “paycheck” and can decide whether they want to save or spend their money.

Teaching your children to be financially literate is a long process, and not one that can be taught overnight. Finances are complex, especially when you get into retirement funds, investments, and taxes. Though your elementary school-aged children may not need to know about these topics yet, it’s important to prepare your teenage and adult children for “the real world” by giving them a primer on complex financial topics.

More Ways to Teach Your Children Financial Lessons

Here are a few more tips to help your children become financially literate:

Set a good example

Your children learn from your behavior and habits, so be wise with your money. If they see you making frequent impulse purchases or living beyond your means, they are more likely to replicate that behavior than if they see you saving for retirement and paying bills responsibly.

Allow children to manage their own money

Whether you start with an allowance or help them open a savings account, let your children take control of their own finances. Help them balance their checkbook or create a small budget. When their lessons are hands-on, they will become proficient faster.

Let them make mistakes

When your children first learn the lesson of opportunity cost, they are likely to feel disappointed. When choosing between two items, they may have thought that one way or another they might get both, or they may have instant buyer’s remorse and wish they had bought the other item. It’s important for you not to step in and give them more money or offer alternatives. Once the lesson is learned, they’ll be more likely to think twice about their buying decisions in the future.

Set goals

Goals are motivational, especially for children. Help them set realistic savings goals at all ages (e.g., saving for a new video game or saving up to buy a used car) so that they can see where their money will be going. If you have young children who do not yet have a bank account, using a clear container to store their change can help them visualize their progress.

Teach the difference between debit and credit

Plastic is plastic, and though credit cards and debit cards look similar, they behave in different ways. Teach your children that using a debit card is the same as paying with cash or a check – the money they spend is immediately deducted from their account. Using a credit card is different and they can delay payment until the end of their statement period, but after that point, any remaining balance begins to collect interest, making their $40 purchase cost a lot more.

Talk about retirement

When you talk to your children about saving money, stress the importance of saving for retirement. When your child is still a minor, you can open a custodial IRA on their behalf; as soon as they earn income (as reported on a tax return), they can begin depositing money into the account.

The added benefit of a custodial IRA account is that unlike other brokerage or trust accounts, like a UGMA or UTMA account, assets in an IRA are not included on the FAFSA when applying for college financial aid. Ownership of the account will automatically transition from you to your child when they reach the age of majority (typically 18 or 21 years old, depending on your location).

Start Your Children on the Right Financial Path

Only six states require that high school students take a standalone personal finance course before graduating. This leaves a significant gap in the financial literacy of young people, with parents picking up the slack. By giving your children financial lessons throughout their lives, and starting when they are young, you are setting them up for success as they mature into adulthood.

It is a core part of Navy Mutual’s mission to educate Members as well as the military and uniformed service community at large on matters of financial security. You can use our calculators to determine anything from how much you need to save for college to how long your retirement savings will last. We also provide life insurance and annuities to military families. For more information, call us at 800-628-6011schedule a consultation, or get a quote today.

Get Instant Access
FREE Weekly Updates! Enter your information to join our mailing list.

Posted In:

About Navy Mutual

Navy Mutual is a nonprofit, federally tax-exempt Veterans Service Organization. Established as the Navy Mutual Aid Association in 1879, it is the oldest Congressionally recognized Veterans Service Organization. Today, Navy Mutual continues serving the military community by providing life insurance and annuities to members of the military services, and their families.

Reader Interactions

Leave A Comment:


About the comments on this site:

These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

The Military Wallet is a property of Three Creeks Media. Neither The Military Wallet nor Three Creeks Media are associated with or endorsed by the U.S. Departments of Defense or Veterans Affairs. The content on The Military Wallet is produced by Three Creeks Media, its partners, affiliates and contractors, any opinions or statements on The Military Wallet should not be attributed to the Dept. of Veterans Affairs, the Dept. of Defense or any governmental entity. If you have questions about Veteran programs offered through or by the Dept. of Veterans Affairs, please visit their website at The content offered on The Military Wallet is for general informational purposes only and may not be relevant to any consumer’s specific situation, this content should not be construed as legal or financial advice. If you have questions of a specific nature consider consulting a financial professional, accountant or attorney to discuss. References to third-party products, rates and offers may change without notice.

Advertising Notice: The Military Wallet and Three Creeks Media, its parent and affiliate companies, may receive compensation through advertising placements on The Military Wallet; For any rankings or lists on this site, The Military Wallet may receive compensation from the companies being ranked and this compensation may affect how, where and in what order products and companies appear in the rankings and lists. If a ranking or list has a company noted to be a “partner” the indicated company is a corporate affiliate of The Military Wallet. No tables, rankings or lists are fully comprehensive and do not include all companies or available products.

Editorial Disclosure: Editorial content on The Military Wallet may include opinions. Any opinions are those of the author alone, and not those of an advertiser to the site nor of  The Military Wallet.