Financial literacy is a lifelong skill that is beneficial in every stage of life. Teaching fiscal responsibility at a young age and raising financially responsible children will result in stability later in life. In fact, introducing children to aspects of financial literacy is ideal, as they are able to make financial decisions and mistakes without negatively impacting their future. Allowing children to learn financial lessons in a safe space will ensure they are financially independent and responsible adults.

As a financial advisor, Stephanie Cox Hulsey of Knoxville, Tennessee, enjoys helping people develop their financial literacy. Today, she owns and operates her own private firm, where she offers a wide range of loyal clients quality investment advice and portfolio management. Having had the chance to learn about finances early in life, she shares her tips for raising financially responsible children.

Teach by Example

One of the most important aspects of raising financially responsible children is to lead by example. It’s essential that you demonstrate financial awareness and responsible spending to them. For instance, explain to them why you might not be buying a particular item at the store. By showing them that, in some cases, a purchase needs to be postponed and saved for, you are demonstrating the basis of financial literacy.

Have a Discussion

Talking about money with your children, when done in the right way, can be very beneficial. It’s important not to scare them or make them feel that the financial stability of the household depends on them, but rather to explain how money works. Discuss with them how money can be earned and the value it provides. Explain the idea of budgeting and how savings play a role. Stephanie Cox Hulsey notes that an especially good time to start having these kinds of conversations is when your child begins to ask questions about bills or money.

Use Age-Appropriate Practice


There are many daily activities and games that can be used to teach children about money. By involving them in simple purchasing decisions and offering financially-based games and role-playing situations, you can teach them a lot about earning money, budgeting, and saving. For example, parents may consider:

  • Providing their children with money-centered toys and games, like a toy cash register and cart of groceries or a board game like Monopoly or the Game of Life. Stephanie Cox Hulsey notes that it’s important that the activity is age-appropriate. For smaller children, playing grocery store is a great way for them to get an idea of how money works. They can practice choosing items that they would like to buy and using their fake money to make the purchase. With a game like this, children will learn not only the cost of goods but also the idea behind budgeting.
  • Allowing children to practice their financial literacy skills at the grocery store — parents may consider giving their children a few dollars while at the grocery store and allowing them to pick some items to purchase. This will allow them to practice making decisions while staying within their budget. Stephanie Cox Hulsey recommends that parents talk their children through these decisions. For example, explain to them the cost of an item in comparison to other options and present them with different choices based on how much they can spend.

Parents can also incorporate the idea of saving and even negotiating into this exercise. If your child would like to purchase something that is out of their budget, give them the option to save up for next time. Or, offer them the chance to negotiate. Negotiation is an important skill that can help in many situations as an adult, including asking for a raise and making large purchases throughout life, including vehicles and homes. When your child would like to purchase an item they can’t afford, first listen to their reasoning and ideas before saying no. They may decide to add the item to a gift list or be willing to exchange additional chores for the extra money that is needed to cover the cost. Whether or not you’re willing to accept their negotiation, it’s a good exercise to give them the chance to offer additional solutions.

  • Helping their children set up a lemonade stand. This is a common activity for children and a very good one for teaching financial literacy By helping your children purchase the supplies they’ll need, set an appropriate price for their product, and evaluate the performance of their business at the end of the day, you can teach them valuable lessons about budgeting, expenses, and income. Not to mention, it’s a fun way to learn about money! In addition, this activity can help you to encourage entrepreneurship.
  • Providing a lump sum of money at the beginning of the week — when it comes to lunch at school or entertainment, consider giving your child the money to cover these costs at the beginning of the week. This will allow them to have the chance to budget and keep track of their spending. If they run out of money before the week is through, ensure they are held accountable. This is a great lesson, demonstrating the consequences of failing to plan and budget. Stephanie Cox Hulsey suggests discussing options with your children when you present them with the money. It’s important to make sure they know what options they have and what actions might help them save. For example, suggest that they make a lunch at home and save up their lunch money for another day or a different purpose.

Stephanie Cox Hulsey on Setting Children Up for Success

These techniques for practicing money management can go a long way to raising financially responsible children. The final step, then, is helping them apply their skills in the real world and on a larger scale. While this will likely be a lifelong endeavor, you can help to set your children up for financial success by getting them started with a bank account. Teach them how the account works and allow them to use it to save up for things they would like to buy. Reviewing their bank statements together and even helping them use their debit card at the store can be great practice for the future. For children that are a bit older, explain the difference between a savings account and a checking account. Discuss interest and the benefits it can have. As they get older, helping them apply for and learn to responsibly use a credit card will also be helpful. Make sure to explain how credit works and the effects that it can have on their life, including debt and credit score.

Teaching children to invest early on is also a great idea. Set them up with a brokerage account and help them choose some stocks to invest in. Following their investments, having discussions about the outcomes, examining their statements, and talking about fluctuations in the market can all be useful activities that will help your children become interested in and comfortable with investing their money, says Stephanie Cox Hulsey.

Most importantly, when your children are old enough, encourage them to get a job. Of course, school and other extra-curricular activities should come first; however a job, even if it’s just for the summer or on weekends, provides a great opportunity for them to practice earning, saving, budgeting, and spending on a larger and more realistic scale. Help them with their buying decisions and ensure that they are held accountable for any setbacks they may encounter from a lack of planning.

 

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