One of our most important jobs as parents is to teach our kids to be responsible, society-contributing adults. A part of that is teaching them money management skills.
I don’t know about you, but I entered adulthood with no clue how to manage my money. That resulted in a ton of debt and living paycheck to paycheck. Although I learned a lot from those situations, that’s definitely not that life that I desire for my kids and neither should you.
Teaching your kids money management skills sets them up for financial success. And, when your money is right, you have an advantage in other areas of your life.
The truth of the matter is that you don’t have to be a personal finance expert to teach your kids about managing money. Even if you’ve made your own mistakes, here’s your opportunity to learn some money management skills that you can use and, ultimately, pass down to your children.
15 Practical Money Skills that Schools Don’t Teach
What money management skills should your kids have? Here are 15 practical money skills that you should be teaching them right now!
1. How to earn money
The most basic skill that every teen should learn when it comes to money is how to actually earn it. After all, you have to actually have money to manage it.
Learning how to earn money is really about teaching your child the importance and value of money. If they know the effort that goes into earning it, they’ll learn to respect it and manage it well. They may even stop asking you for more…
When teaching your child how to earn money, it’s important to teach that there are more options than just trading their time and labor. Open their eyes to possibilities like investing, passive income, and even owning a business.
Earning an allowance is a good place to start, but consider some business ideas for kids that they can leverage to earn money.
2. Creating a budget
Now that your kid knows how to make money, it’s time to teach them how to manage it. This is where learning how to budget comes into play.
Contrary to popular belief, creating a budget isn’t complicated at all. It is simply a plan for your money. It’s you proactively listing out exactly where each dime of your earned income will go.
The basics of what you need to teach your kid is to not let their expenses exceed the amount of money that they earn.
As they get money, they should list out how they plan to spend it. To keep it simple, you can teach them to put their money in three categories: saving, sowing (giving), and spending.
That way, every time they get money, they can easily divide it into those simple budget categories.
3. Tracking spending
When you budget you plan your expenses and spending. However, once you have a plan, you also need to track your spending to that plan. This is another money management skill to teach your children.
Teaching your kids to track their spending will ensure that they’re always aware of where their money is going. In the future, it’ll help them avoid overspending and, ultimately, living above their means.
A simple lesson to teach them is that if they don’t have it, they can’t spend it. That means that they can’t spend money that they don’t have.
Keeping track of their spending will allow them to see exactly how much money they have to use.
Today, there are apps that can help do this automatically. However, I strongly recommend teaching them the “old school” checkbook balancing method first. This will get them into the habit of actually documenting their spending and paying attention to their funds.
4. How to open a bank account
It’s very unlikely that your children will be exclusively using cash. Who knows, by the time they’re adults, cash may not even exist anymore. Either way, it’ll be important for them to know how to open a bank account.
Today, opening a bank account is much simpler than in days past. You can simply go online, put in some identifying information, and you’ll be able to open a bank account in minutes. That means that it’s something simple that you can walk your children through.
Although you can open an account online, it’s still a good idea to take them to a local bank branch to learn how to do this in person as well.
When it comes to bank accounts for kids, they’ll only need a savings account and a checking account. It’s important to teach them the difference between the two.
If you’re following the 3 budget categories that I mentioned, this means that money for saving will go to the savings account and money for sowing & spending will go to their checking account.
They should also learn how to access these accounts to check their balances and how to deposit and transfer money into these accounts. While you’re teaching them to open a bank account, be sure to teach them things to consider when choosing a bank.
5. How to use a debit card
Having a checking account means that they’ll have access to a debit card. It’s important to teach your child how to use a debit card when they open their account.
They’ll need to understand that they can only spend the amount of money that is available in their checking account. This is why budgeting and tracking their expenses is important.
Also, since identity theft is a possibility, it’s important to talk to your children about how to keep their debit cards safe. They should never give out their card or PIN and they should keep it in a safe place.
There are several debit cards and banking apps specifically for teens. One to consider is Qube Money. It allows you to monitor your kid’s spending while also giving them the freedom of having a debit card.
6. Saving money
Knowing how to save money is another important financial skill to have. Teaching your kids to save money helps them develop discipline, learn delayed gratification, and how to plan for their future.
It’s important to help them create their own savings goals to work toward. This can be saving up for a new gadget, putting money away for a car, or even saving up for college.
Help them create a savings plan on how much money they’ll need to deposit on a weekly or monthly basis to reach their savings goals.
Now is also a good time to teach them about saving for retirement. Although they don’t need to get started right away, they should understand the importance of retirement savings and how it works.
7. How to pay bills on time
Another important skill that your kids should know is how to pay bills and, more importantly, to pay them on time. Doing so teaches them responsibility and accountability.
Consider having them sit with you as you pay your own bills. You can teach them how to make payments online or in person.
While you’re teaching them about paying bills, it’s also important to teach them how to interact with customer service. They’ll need to know how to call customer service when there is an issue with an account or if they need to change payment arrangements.
This teaches them to ask for help and what they need instead of avoiding their bills and, ultimately, impacting their credit history.
8. How to build & maintain credit
Although I’m not an advocate for using credit, it’s one of those things that I’d rather teach my children than have them find out on their own.
Credit is a huge part of the financial landscape, so it’s important that you teach your children how it works. They should understand what credit is used for, how credit scores are determined, and how to access their free credit report.
Knowing more about credit at an early age will help them avoid credit card debt and things like predatory lending.
9. Debt avoidance
While teaching about credit, a significant portion of the discussion should revolve around debt. The idea is to teach them not to accumulate debt as much as possible.
This means teaching them to pay off the credit card balance each month if they have one. It also means teaching them ways to avoid student loan debt and even car loans.
Hopefully, by teaching them how to save up for their financial goals, they will learn how they can avoid debt. Ultimately, it’s important that they understand the risks of having large amounts of debt and the consequences of not paying it back.
10. Negotiation skills
You may not think of negotiation skills when you consider money management; however, it is a necessary skill to have. Knowing how to effectively negotiate can save your money and help you avoid being taken advantage of.
They’ll need to know how to negotiate their salary, interest rates, the cost of large purchases, and more! Remember negotiation is where both parties give up something to come up with a mutual agreement—which isn’t the same as haggling.
If you’re not sure how to negotiate, I suggest reading some books on negotiation and practicing yourself.
Investing is one of those things that people are often afraid to do out of fear and lack of knowledge. However, you miss out on so much when you don’t invest. It is a wealth-building vehicle that allows your money to work for you like no other financial tool.
If you don’t know much about investing, now is a great time to learn as you teach your children.
Even if you don’t feel equipped to teach them the small details of investing, at least provide an overview of what it is and how it can help build wealth.
12. Tax planning
Taxes are one financial obligation that we can’t avoid. Unfortunately, though, it’s also one that we aren’t taught about growing up. As a result, we don’t know how to use tax laws to our advantage and may end up paying more in taxes than we should.
You shouldn’t just pay taxes. Instead, you should create a tax plan or strategy each year. The goal isn’t to avoid taxes but to find ways to minimize your taxable income so that you’re able to keep more of your hard-earned money.
Here are a few things that you should teach your children about taxes:
- How they are determined by government
- What taxes are used for
- How income affects your taxes
- How to file taxes
- Ways to lower your taxes
A great place to learn about taxes is the IRS website (if you’re in the US). They have a website dedicated to teaching students about taxes.
13. Acquiring insurance coverage
Another important financial skill for your teen to learn is how to acquire insurance. Having insurance is another financial obligation that they will have to assume as an adult. So, it’s important to teach them how to shop for insurance and know the kind of coverage they’ll need.
In most cases, health insurance plans are provided by an employer; however, they’ll still need to learn how to get automobile, home, life, and even disability insurance on their own. It’s still a good idea to show them how to get health insurance outside of an employer if they choose to be an entrepreneur.
During this process, you can also teach them about comparative shopping and how they should always evaluate all of their options.
14. How to understand a pay stub
I remember how confused I was when I saw my first pay stub. First, there was a lot of money coming out of my paycheck. More importantly, I didn’t understand the abbreviations for who was taking said money!
FITW, MED, and SS were all taking some part of my paycheck and I didn’t understand why.
You may have had the same reaction when you received your first paycheck. That’s why it’s important to teach your teens what an actual paycheck looks like and the deductions and taxes that will be withdrawn from it.
Knowing exactly what to expect on a pay stub is the start to creating a successful budget. Ultimately, they shouldn’t be surprised when they take home less than they anticipated. This goes back to explaining taxes and even insurance to them.
15. Financial planning & goal setting
Lastly, but most importantly, knowing how to set realistic financial goals is an important skill to have. There should always be a goal for your money that will govern how you manage it.
It’s important to teach your child how to set financial goals so that they are constantly being strategic about their money. When you have a goal, you will make sure that your spending and even saving habits align with reaching that goal.
When considering financial goals, they should be SMART goals. That means that they are specific, measurable, attainable, realistic, and time-bound. An example would be to save $500 toward college in 6 months.
This goal provides the specific amount of money that you want to save, you can measure your progress toward it, it is something that can be achieved and is realistic, and you have a time frame to achieve it in.
If you need more examples, read this post on financial goal examples.
Bonus: How to write a check
Although checks are used far less than in the past, they aren’t quite obsolete. There are things that you still need to use checks for—like deposits.
You can find blank check examples online to teach your child how to write and endorse checks. If you’re not sure how to write a check yourself, check out this example.
Why are money management skills important?
Money is at the center of everything we do. Basically, we need money to live. If you don’t have money management skills, you’ll find yourself struggling financially.
When you are more effective at managing money, you are able to get the most out of life. Money becomes less of a stress and you’re able to do more with what you earn.
It’s important that we teach money management skills to our children so that they can get further with their money and continue building generational wealth.