A Kid’s Guide to Saving, Spending and Investing

Talking to your kids about money now can help set them up to be more financially confident adults. However, many families don’t have these conversations. In a 2018 study, 15-year-olds in the United States lagged behind their peers in five other countries when it came to financial literacy. The 2021 refresh of this study was delayed. But we hope parents can help their teens improve financial literacy for the next one—money knowledge is that important.

In a few short years, teens could be taking out student loans and making other important financial decisions that could impact their futures. Many high schools now offer personal finance courses, but it’s never too early to start teaching your kids about money. After all, marketers target young children to want the latest toys, so that’s a great time to teach kids delayed gratification or wants versus needs.

As kids mature, the money lessons can get more sophisticated, but you want to start with a foundation of financial literacy and build on that over time. Introducing them to the basics of saving, spending and investing is a great place to start teaching kids about money.

Teaching Kids About Saving

Many Americans aren’t saving enough money for retirement or other needs. Creating a savings habit early can help them get off on the right financial foot. If they automatically set aside 10%–20% every time they get a birthday check or money from walking a neighbor’s dog, they’ll watch that money grow over time. That can help reinforce this habit and perhaps inspire them to increase their savings rate over time.

Have kids create a savings goal—a specific reason they’re setting aside money. Do they want to save up for a new skateboard? Concert tickets? Something even bigger? Having that goal and a specific amount tied to it might motivate kids to pick up extra chores or forgo small purchases in favor of a bigger payoff later. Explain how saving up for something they want or need can help them avoid going into debt to pay for it.

For young children, it can be helpful for them to see coins or bills piling up in a clear container. That serves as tangible proof of their hard work. Older children or teens might prefer to save in a bank account, so their money is more secure and earns interest. Parents may want to match a portion of kids’ savings so that they can see their money grow even faster. That can help plant the seeds for a lifelong savings habit.

Teaching Kids About Spending

Whether they’re buying a toy, a pair of designer jeans or something else, kids need to understand the opportunity costs that come with every purchase. If they buy a slice of pizza now, they won’t have money for something else later. They also need to learn the difference between needs (such as food, shelter and clothing) and wants (such as video games, toys and jewelry). That can help them prioritize where they truly want to spend their money.

A trip to the grocery store is a chance to learn about comparison shopping. With a little basic math, kids can calculate the per-unit cost of a box of cereal and determine which cereal is the best value. Perhaps the money they save by choosing a less expensive item could help them move closer to their savings goal.

Anytime you pay bills or otherwise spend money, it’s an opportunity to talk to older kids about financial priorities. It might be helpful for them to know how much things cost and see how important it is to pay bills on time.

Teaching Kids About Investing

Once kids learn the basics of saving and spending, they might be excited to learn about investing. They have time on their side, so their money has lots of time to recover from market dips. Depending on their maturity level and interests, some kids might enjoy following investments as early as grade school or middle school.

The key difference between saving and investing is that money saved grows at a more predictable rate than money invested. An investment is an asset—something you can buy today with the expectation that it can be sold in the future for a higher price. Depending on what happens in the economic markets, the asset could grow to become worth much more in the future—but it can also lose value and be worth much less. Assets include stocks, bonds, mutual funds, real estate and collections like art or baseball cards.

Kids and teens might enjoy following the stock market. They can look up the ticker symbol for a company they like and see how the company’s value goes up or down. Maybe they will buy a few shares of that company (with the help of a parent or guardian through a custodial account) and become a part owner. Even if they don’t own shares, following the market can teach them how values fluctuate over time.

Mutual funds are another way kids and teens can learn about investing. Instead of owning shares in one company, they own pieces of lots of companies chosen by a professional. There are higher-risk and lower-risk mutual funds. Owning different kinds of funds with varying levels of risk can help diversify investments. Diversification simply means spreading out your money over multiple asset classes (categories of investments) that respond differently to market changes—so if one type goes down, another may go up. And there are mutual funds that put different types of asset classes together in one product, which can be convenient.

What to Do Next

Money talk is taboo in some families. But breaking that mold and having a series of age-appropriate money conversations over time can help kids grow into financially aware adults. The more they understand the value of smart saving, spending and investing, the more they can put those concepts to work in their lives.