Financial Literacy Tips for Kids & Teens

There are so many important life lessons to pass down to your children, from showing them how to put their toys away as kids to teaching them how to drive a car as teenagers.

And one of the most crucial — and practical — things you’ll teach them about can be a potentially tricky subject: money. It can be difficult talking about money at any age, but the things you teach your children now will help shape their financial lives through adulthood.

Here’s what you need to know about financial literacy, why it’s so important, and how to pass along important money lessons to kids of all ages.

What is Financial Literacy?

First, what does financial literacy mean? Basically, financial literacy is about being able to understand and use basic financial principles. That means having the skills to manage your daily finances with confidence and effectively work toward short- and long-term financial goals. 

While it might seem like there’s a lot of ground to cover, financial literacy for kids doesn’t have to be complicated. The main goal is getting kids and young adults comfortable with talking about finances and familiar with the key tenets of money management. 

The first step is a basic understanding of core financial concepts. Here are the five key principles of financial literacy that kids and teens should know about:

• Earning: What does it mean to have an income? This also includes how to keep track of your income and your different sources of income.
• Saving: Why is it important to put money away for the future? You can also cover the benefits of a savings account and how to save toward specific goals, such as saving for university tuition.
• Investing: How can investing make your money work harder for you? You might want to cover the different types of investment options, like stocks, bonds, and retirement funds.
• Protecting: How do you keep your hard-earned money safe? This includes why it’s important to find a trusted financial institution and learn how to avoid fraud and scams.
• Borrowing: What are the basics of borrowing money? For teens, this can include the basics of interest earned on a credit card and the terms around repaying a loan.

Why is Financial Literacy Important for Your Child or Teenager?

No matter how old your children are, they can start reaping the benefits of financial literacy. Not only will it help them navigate money matters as young adults, but what you teach them now can have lasting effects on their financial habits into adulthood. 

The benefits of financial literacy include:

• Encourages long-term thinking. Talking about saving and investing can help inspire kids to plan for the future and start setting goals.
• Builds healthy financial habits. Creating smart money habits takes time, and it’s much easier to start learning these lessons before there’s actual risk involved.
• Fosters confidence in financial decisions. Money matters can be intimidating but building a positive environment for learning about money can help make kids feel more confident and informed.
• Creates long-term financial wellness. Helping kids learn to make informed decisions about money can create a lasting impact on their spending and saving behaviours as an adult.

Tips to Start Your Child’s Financial Literacy Journey

It’s never too early to start talking to kids about money. Even young children can benefit from learning the beginning basics of financial literacy, starting with simpler concepts like earning and saving. 

If you’re teaching financial literacy to kids under the age of 13, here are a few age-appropriate tips and examples to get you started:

• Include your child in everyday money matters. Have them create a weekly household budget or learn how to ring up grocery items at the self-checkout. These early encounters with financial terms will help them become more comfortable and familiar with these topics.
• Give your child a regular allowance and a budget. Provide them with real money or play money and have them record their spending in a simple budgeting app or notebook. This can help instill good habits around tracking your spending and understanding the value of different items. You can also open a chequing account for your kid or teenager so they can deposit their allowance and manage their spending.
• Make it fun and easy to save for a financial goal. The BMO Savings Goals lets you set up custom goals and visually track your progress toward milestones. Pick something that your kids can get excited about, like saving up for a new game or book that they can enjoy once they’ve hit their goal.
• Help your child understand the difference between ‘wants’ and needs.’ A fun way to do this is by turning it into a game. Name something out loud or write a list of things (like water, toys, clothes, ice cream, holidays, a bed, etc.) and ask your child to identify whether it is a ‘want’ or a ‘need’. Discuss their answers and their thinking behind each of their choices.

Financial Literacy Tips to Prepare Your Teenager for The Future

As a teenager, managing money starts to become much more real. Maybe your teenager got their first summer job or has started saving up for their first big purchase. Whatever their exposure to money might be, it’s a crucial time to continue building your teen’s financial literacy.

Here are a few ways to start teaching your teenager about personal finances:

• Help your teen open a chequing account. This is a great way to help give them a sense of financial independence and create a safe place to put away any spending money.
• Get your teen a basic debit card so they can learn how to manage their everyday spending. Make sure to go over the basics, like how to deposit money, use an ATM, and what happens when you overdraft on your debit account. 
• Encourage your teen to have a charitable mindset. You can do this by showing them how to set aside money for donations using their debit card or chequing account. Consider picking out a local organization that your family can donate to together.
• Include your teen in important financial conversations, particularly ones that involve them. For instance, talking about saving for college or taking our student loans can help prepare them for more serious money matters and create an open, honest environment for discussing these topics. 
• Consider opening a Registered Education Savings Plan (RESP) to save for your teen’s education. Explain how a RESP works so they are aware of this financial investment in their future.

Conclusion

The most important thing to know about teaching your kids financial literacy — it’s never too early to get started. There are plenty of games, tools, and tips out there to help children and teens of all ages learn more about money in an engaging, age-appropriate way. If you’re looking to start building your family’s financial literacy, check out BMO’s products and resources for kids and teens.