Teach Your Children Well: Basic Financial Education

As soon as your children begin to handle money, start teaching them how to handle it wisely.



Allowances are a good way to teach children how to save money and budget for the things they want. How much you give depends on what you expect them to buy and how much you want them to save.

When it comes to giving children allowances: set parameters, make allowance day a routine, like payday, and consider “raises” for children who manage money well.

Take it to the bank. Opening a savings account in a “real” bank introduces children to the concepts of earning interest and compounding.Encourage them to divide their money, allowing them to spend, while also insisting they save some. Writing down each goal and the amount that must be saved will help children learn the difference between short-term and long-term goals.



Shopping sense. Teach children how to compare items by price and quality. By explaining that you won’t buy them something every time, you can lead children into thinking carefully about the purchases they want to make. Consider setting aside a day when you will take children shopping for themselves. This encourages them to save for something they want rather than buying on impulse. For “big-ticket” items, suggest that they might put the items on a birthday list.

Earning and handling income. Earned income from part-time jobs might be subject to withholdings for FICA and federal and/or state income taxes. Show your children how this takes a bite out their paychecks.

Creating a balanced budget. As children get older, help them prepare a budget to make ends meet. Children should first list all their income. Next, they should list routine expenses. Finally, subtract the expenses from the income. To help children learn about budgeting: devise a system for keeping track of what’s spent, categorize expenses as needs and wants, and suggest ways to increase income and/or reduce expenses.



The future is now. Teenagers should be ready to focus on saving for larger goals. While bank accounts may still be the primary savings vehicles for them, you might also consider introducing your teenagers to the principles of investing. Helping older children learn about topics such as risk tolerance, time horizons, market volatility, and asset diversification may predispose them to take charge of their financial future. 

The information contained in this material is being provided for general education purposes and with the understanding that it is not intended to be used or interpreted as specific legal, tax or investment advice. Neither Ameriprise Financial Services, Inc. nor any of its employees or representatives are authorized to give legal or tax advice. You are encouraged to seek the guidance of your own personal legal or tax counsel. Ameriprise Financial Services, Inc. Member FINRA and SIPC.