Raising Financially Aware Kids in The Internet Age

Today's kids have more information at their fingertips than past generations could ever have dreamed—but not all this information is always accurate. And when it comes to financial literacy, the ability to weed out misinformation is crucial when it comes to developing healthy financial habits. What can parents do to encourage their kids to become financially aware adults? 

Young Children: Learning What Money Is and What It Can Do

It's never too early for children to learn the basic principles behind money: as a means to exchange something you have for something you want. By bartering with your toddler—exchanging a toy for a treat, or setting up a play store at home where they can "purchase" items they want—you'll be able to get them started on the concept of exchanging money.

Once your children are a bit older, you can build on this initial knowledge by involving them in household purchases. For example, you can help them boost their math and financial skills by adding up the price of items you're purchasing at the grocery store or choosing between products to ensure that the total stays below a certain amount. And with access to the internet, it's easier than ever to see how much a specific item costs. 

Adolescents and Early Teens: Saving and Living Within Your Means

Tweens and teenagers are better able to conceptualize cost and value, which makes this the perfect time to create habits that will help them live within their means. If your child receives an allowance, this can provide an opportunity to begin shifting the cost of certain treats and extras to them.

For example, you may be able to show your child that one week's allowance is enough to go to the movies twice or purchase a toy they've been eyeing, whereas buying a new video game or larger-ticket item will require them to save up two- or three-weeks’ allowance. Not only can this help your child learn to prioritize among various wants and delay gratification, but using a cash allowance can also discourage overspending.1 

Late Teens: Building Credit and Investing

Saving and living within one's means are important lessons to apply during every stage of life. But when teens are preparing to enter adulthood, it's also crucial for them to understand the role credit can play in everything from hiring decisions to purchasing their first home.2 By establishing healthy credit habits (such as taking out a low-limit credit card for incidental expenses and paying it off each month), your teen can get an early start on building a solid credit score.  

One of the final steps in creating financially-literate children is to educate them on investing. Fortunately, the internet has made investing more accessible than ever. No longer do investors need to call up a stockbroker to check daily prices or make trades; today, anyone with an internet connection has this data at their fingertips, and many online brokerage accounts can be opened with a relatively small initial contribution. By working with your teen to evaluate the merit of potential investments, you can help them capture some of the most valuable investing years of their life.3 

Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

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1 https://www.thebalance.com/how-to-switch-to-cash-only-for-your-budget-2385691

2 https://scholars.org/contribution/how-do-employers-use-credit-reports-hiring-decisions-and-how-can-process-be-improved

3 https://www.themint.org/kids/compounding-calculator.html