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Advisors often encounter clients concerned about their children's economic futures, wondering whether involving them in financial planning at an early age is beneficial. Money is usually seen as a taboo, especially when discussing it with children. What could their little minds possibly know about the world?
However, financial literacy is a cornerstone of successful adulthood and many enter it with no idea how to manage their finances effectively. If not introduced early, individuals may squander money and fail to appreciate its value. On the other hand, open conversations about finances lead to greater resilience, so individuals make informed decisions about the money they work so hard to earn.
The Case for Involving Children in Financial Planning
Introducing the concepts of earning and saving money doesn’t have to be an uncomfortable or complicated sit-down conversation with children. There are many benefits to financial education and to maximize them, advisors can help clients introduce financial concepts early and often in age-appropriate ways.
1. The Long-Term Impact of Early Financial Education
A person’s relationship with money stems from their experiences with it as a young child. Studies show that children who receive financial education at a young age are more likely to develop strong money management skills, a necessity in adulthood.
By age seven, children aren't just well-versed with counting numbers from one to 10 but have already formed financial habits that will impact their financial capacities in life as adults. Involving children in financial planning allows them to develop the foundation for key skills in adulthood, like budgeting and long-term savings, so that they can understand financial independence later in life.
2. Encouraging Healthy Money Habits
The financial behaviors parents model significantly influence their children’s attitudes toward money. Parents must feel confident in their financial decisions so they can effectively pass down sound money management skills. However, when surveyed, only 36% of parents expressed confidence in the financial advice they give their children.
Exposing children to monthly cash flow and household budgeting provides insight into how finances are managed. It also opens their minds to economic realities that shape daily financial habits, such as why the lights have to be turned off and why a household prefers off-brand products.
How to Involve Children in Financial Planning
For parents who decide to include their children in financial planning, here are practical strategies based on best practices in economic education.
1. Start with Age-Appropriate Financial Lessons
Introducing financial concepts should align with a child's developmental stage:
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Ages 4-7: Explain that money is earned through earnest work. Have them do chores around the house where they get paid and teach them basic saving concepts with the money they earn using jars labeled “spend,” “save,” and “donate.” You can also introduce needs — those they cannot live without, like food, shelter and clothing, while wants are items they like to have but don’t need — like toys and treats.
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Ages 8-12: Introduce budgeting principles by allowing them to manage their allowance or earnings from small jobs. Parents can help children understand the value of their money by saving up for specific goals like a new toy or a trip for a lesson on delayed gratification.
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Ages 13-18: Discuss their post-12th grade plan and go over the costs of going to college and the consequences of debt — the earlier, the better so they can plan their future course of action. If parents plan to save up for their children, direct them to savings accounts specifically designed for education, such as a 529 tax-advantaged savings plan. Bring up topics on getting a part-time job, investing and compound interest and tax basics.
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Young adults: Teach them about establishing good credit, debt management and retirement planning. Encourage them to contribute to a Roth IRA or 401 as soon as they start earning.
2. Make Saving and Investing a Family Activity
Creating a family financial plan where children actively participate in setting savings goals can make financial planning more interesting. For example, parents can set a goal to save $3,000 for a family vacation over the next year. They can involve their children by breaking down the total cost — $1,500 for flights, $1,000 for lodging and $500 for activities. Parents can then encourage kids to contribute by setting aside a portion of their allowance and brainstorming ways to cut back on expenses.
This experiential learning allows children to remember at least 75% of what they learn when they engage with it in a hands-on way and retain more information than those who only receive an abstract discussion.
3. Encourage Earnings and Budgeting
Allowing children to earn money through age-appropriate jobs — whether babysitting, mowing lawns or working part-time — gives them firsthand experience with income management. Once children have their own money, help them create a budget to ensure they learn to allocate funds responsibly.
4. Introduce Retirement and Long-Term Planning Early
A crucial component of financial planning is long-term security. While retirement may seem like a distant concern for children, introducing the concept of compound interest early can have profound effects. Individuals who begin saving for retirement in their 20s are significantly more likely to achieve financial independence earlier in life.
5. Help Them Avoid Common Financial Pitfalls
Financial advisors frequently see clients struggling with poor financial habits developed in early adulthood. Teaching children about common financial mistakes — such as impulse spending, failing to save for emergencies or misusing credit — can prevent these issues.
Encouraging children to track their spending, avoid high-interest debt and differentiate between needs and wants builds a foundation for smarter financial decision-making.
Raise Money-Smart Kids to Secure Their Future
Financial planning isn’t an automatic feature that gets unlocked in adulthood. Rather, it’s a skill that has to be learned from an early age and honed throughout childhood before it becomes an established, trusty train in later years. Parents who involve their children in financial planning today are investing in their children’s economic well-being for a lifetime.