The Most Important Lesson You Are Not Teaching Your Kids

Are your kids smart with money? Probably not! Nearly every survey on the subject shows that most adults—let alone kids—can’t answer the most basic questions about credit and debt, or saving and investing. This has real world consequences. Here’s why financial literacy matters—and why you, as a parent, need to teach it to your kids.

Key Takeaways

• Financial literacy is a set of skills for navigating personal finances and investments.
• Most Americans score poorly on financial literacy, with potentially bad outcomes as a result.
• While they don’t usually teach it in school, parents can promote financial literacy for their children.
• Here, we go over a few key tenets of financial literacy that you can teach your kids.

State of Personal Finance Education

Financial illiteracy permeates our society. Many Americans save nothing each month, and millions more are unprepared for retirement. With 10,000 workers reaching age 65 every day, our nation is facing a retirement crisis of unprecedented magnitude.

If you want your kids to avoid this fate, you must make sure they become financially literate. That means, quite simply, that we must teach them about money while they’re young.

Unfortunately, few children are getting the education they need. In 2024, only 35 states require high school students to study personal finance before they receive a diploma, according to the Council for Economic Education, and most employers provide little to no financial education in the workplace.

Teaching Personal Finance to Younger Kids

Children interact with money at a very young age, with three-year-olds choosing cereal at the grocery store. Parents also give their children allowances at a young age, often starting at age six, research shows.

However, many parents don’t talk with their kids about money—and it’s often because they simply don’t know what to say.

That’s what was discovered in a survey of parents. Most (89%) parents of 4- to 8-year-old children feel it’s extremely important that their kids grow up with good financial habits, and about as many parents (91%) agree they should be the ones teaching their children these habits.

But half of parents (49%) say they don’t know how to discuss money in ways they think their kids would actually understand. As a result, one in four parents never (or almost never) talks to their kids about household finances.

Principles of Financial Literacy

One place to start is with The Squirrel Manifesto, the best-selling children’s book that Jean Edelman, my wife, and I wrote in 2018 for 4- to 8-year-olds. It sets the stage for having effective, meaningful conversations with your children, from tots to teens.

Your kids learn both by observing your behavior and through their own experiences. From allowances and birthday money to the cash they’ll earn babysitting or mowing lawns, set your children on the path to a lifetime of fiscal responsibility through thoughtful, intentional money habits.

Here are four principles to begin teaching your children financial literacy.

1. Tax a Little. Kids need to be taught from a very early age that they don’t get to keep everything they earn. Just as the government collects a portion of your income in taxes, you should withhold a portion of your child’s allowance, birthday money, or babysitting earnings. Call it a tax to get them used to the fact that they can’t keep everything they earn—making them adjust their spending and saving plans accordingly. Then, without the child’s knowledge, put the “taxes” into a savings or investment account. When your child is ready to buy a car or go to college, hand over the account. They’ll think you’re a hero, and they’ll see firsthand the value of delayed gratification and long-term investing.
2. Spend a Little. One of the more obvious benefits of money is the joy of spending it. Allow your child to buy something they truly want—a comic book, toy, candy (purchases always subject to your approval)—so they can develop a positive relationship with money, based on a mindset of earning in order to spend.
3. Save a Little. Not every item the child wants can be purchased immediately, as some items simply cost more than the child has available to spend. So start every spending goal with a savings plan, whether your child wants a doll, video game, bicycle, smartphone, or car. By training them to save for long-term goals, you’ll be teaching the benefit of delayed gratification and arming them with the skills they need to avoid impulse buying.
4. Give a Little. Children should be taught that the opportunities that come with money are also imbued with the responsibility and obligation to serve those who are less fortunate. For every dollar your child receives, decide on a portion that will go to philanthropy. The amount should be consistent, meaning that every time the child receives or earns money, the percentage must be material to reflect true sacrifice and service. Let the child decide who receives the money, whether it’s a religious institution, charity, or friend in need, and in the process, they might discover that sometimes the greatest joy in spending comes not from spending on themselves, but in supporting and caring for others.

How Many Americans Are Living Paycheck to Paycheck?

A quarter (26%) of households are living paycheck to paycheck, a 2024 Bank of America analysis found. 35% of lower income households (those that make less than $50,000 per year) and 20% of higher income households (those that make over $150,000 per year) live paycheck to paycheck.

What Do Most People Have Saved for Retirement?

Americans have an estimated median retirement savings of $64,000, according to a 2024 report by the Transamerica Center for Retirement Studies. This means that half of people saved more than this, and half of people saved less.

How Many Americans Have Nothing Saved for Retirement?

According to AARP, 1 in 5 (20%) of Americans age 50 and older have no retirement savings.

The Bottom Line

By teaching your kids foundational principles of spending and saving at an early age, you can help them form positive financial habits that will last their entire lives.