Tips for Teaching Kids About Financial Responsibility

The Piggy Bank by Mike Tungate Why should it matter whether your child has a piggy bank or not? According to recent research, there’s a long litany of reasons from aspiration to workplace efficiency that puts financially knowledgeable students and young adults ahead of their peers. And the great majority of that financial knowledge comes from outside of the educational system – from parents and experience.

Research on Students’ Financial Literacy

In a study conducted by Lewis Mandell and Linda Klein, both professors in finance departments of strong universities, it was found that motivational factors are the key determinants of financial literacy. In 2001, a Harris poll of graduating college seniors found that only eight percent believed themselves to be financially literate. A disappointing half of students surveyed reported that they were “not very” or “not at all” knowledgeable regarding personal finance. Another study cited by Mandell and Klein showed that, in 2000, 25% of undergraduate college students had four or more credit cards, and of those, ten percent owed $3,000-$7,000 in outstanding balances. It’s obvious from this information that American students and young adults don’t have the basic knowledge to make successful financial decisions. But why is this the case?

The Failure of Financial Literacy Initiatives

Data from the national Jump$tart survey shows that motivation is the main determinant of financial literacy. This means that educational programs meant to improve financial literacy are ineffective unless they address the issues of aspiration, motivation, and the immediate relevance of financial knowledge for young people. Perceived relevance determines an individual’s engagement in learning a certain set of skills or information, so students who don’t understand the ideas of financial independence and responsibility won’t be interested in financial literacy. And that lack of interest generates financially illiterate graduates who enter the workplace and negatively influence productivity. So, to keep your child from struggling with credit card debt, negatively affecting the workplace environment, and a slew of other unsavory possibilities, try some of the following tips to increase motivation and financial literacy. By doing so, you’ll help your child take financial responsibility and recognize the importance of successful financial independence.

Providing Motivation

It might seem like a difficult task – how can you teach your child to care about finances? You can do it by rewarding good behavior and hard work – not simply giving – and that will teach your child that it pays to devote serious time and energy to work. For example, you might give your child a dollar for helping you fold the laundry or complete some other household chore. Making a chore chart with the amount of compensation you’re willing to provide for each chore is a good way to do this, and you can even include getting As on school report cards on the chart. This is the first step toward engaging your child in financial awareness.

Making money will typically attract and hold a child’s interest, and from there, you can make things more complicated. For example, the next time you’re out shopping together and your child asks you to buy something, say that you’ll do it on credit and specify a payment deadline and interest rates. Explain that if you’re not repaid on time, your child will owe you more money than it cost to buy the item in the first place. This can help make the abstract concept of credit clearer and more relevant to your child.

Setting Goals and Using Visuals

Most children have at least one “big-ticket” item that they want at any given time, so sit down with your child and decide on a substantial purchase to make. It doesn’t have to be exorbitantly expensive, but your child should have to save for at least a month to get it. Next, use some poster board and colorful markers to make a savings chart, marking “landmark” savings points along the way, such as $10, $20, $30, etc. It’s fun and educational for your child to fill in the chart as he or she saves money, coming closer and closer to the ultimate goal. Once that goal is reached, it’s very rewarding for a child to realize that he or she is capable of being financially responsible enough to save all that money. Simply giving a child some self confidence in financial literacy can be highly effective in fostering successful financial understanding for life.

Opening a Savings Account

Once your child has learned the value of saving money, it’s time to open a savings account. Many banks offer this service to minors free of charge and without a minimum balance, so it’s perfectly feasible for your child to open a savings account. If you do this, make sure that your child is the one who’s interacting with the bank representative – of course, you can provide information that your child doesn’t know, but it’s important for your child to be strongly involved in this process. This way, your child can ask direct questions and make sure that he or she completely understands everything about the new savings account. This is another empowering experience that can give your child the motivation and confidence to become financially literate and responsible.

Maria Rainier


Maria Rainier is a freelance writer and blog junkie. She is currently a resident blogger at First in Education, where recently she's been researching different msw degree programs and blogging about student life. In her spare time, she enjoys square-foot gardening, swimming, and avoiding her laptop.

Mandell, Lewis and Linda Schmid Klein. “Motivation and financial literacy.” Financial Services Review 16 (2007): 105-116.

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