Establishing Good Financial Habits in Kids

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Over the years, I’ve asked many people I considered good with money or who worked in the financial sector how to teach kids about investments. The best I got was “Open a savings account and add some money each month to show your son how the money compounds.”


Well… that sounds really boring even for an adult, not to mention a child. First of all, savings accounts don’t really earn much, not even above the inflation rate (some banks offer as low as 0.4% rate, where the inflation stands around 1,5% – 2%x, on average).

Photo by Drew Beamer on Unsplash

Second of all, abstract concepts don’t really work for children. Kids base their judgments on hard facts they can see, which are preferably delivered at the speed of light, not over a year of sluggish growth. It’s tricky for adults to stick to their savings goals, watching the agonizingly slow growth of their savings account but for kids who only see money for its spending power, it’s an impossible task.

As a parent, the Eureka moment came after I discovered the FIRE movement, which led me to open an ongoing conversation with my son about money and finances.

He is a very clever boy, and even if he doesn’t say something right away and doesn’t ask questions, he usually goes to his “cave” to internalise everything we discussed. Out of the blue, in the most unexpected moment, he will follow up on parts of the conversation we had days or weeks ago. For me, our conversations are a huge step towards recognising what money can offer. My son used to see money as a commodity to spend only. But now, he talks about becoming financially independent as soon as possible to focus on being a YouTuber entirely (his current dream which I’m sure will change).

Since children learn from copying adults, they also pick up our financial and spending habits. Whatever they observe growing up, they will most likely carry into their adult lives.

For instance, if I make poor financial decisions, my kids will see me struggle, stress, and be anxious about money, while figuring out how to pay the credit cards off or pay for rent and the bills. Unwillingly, they will pick up on anxieties around money. Even after becoming adults, they often unconsciously would/could follow the same script, regardless of how much money they will earn. If I show my kids that the moment I have money on my account, I go off and spend it all, they would most likely follow on that path.

If I make my kids believe that credit cards are to “help” inflate a lifestyle and pay for goods that I cannot afford to pay in cash for, this is of course what they will do once they get their first jobs.

Children copy our behaviours, and managing finances is part of the behaviour children will copy. Hence, it’s imperative to be mindful around kids, regardless of what family-related actions we take (finances, shopping, mental health struggles, family meetings to resolve problems etc.). Having children is a neverending adventure. Part of that journey is being mindful of our actions and what signals we send out (our expectations match our actions).

However, mindfulness is often challenging, especially for busy parents; below, I’m sharing with you my cheat sheet on how to tackle finances with kids (the list is based on ongoing trials and errors):

  1. Teenage M. only gets to keep 10% of all the money gifts he receives; the rest goes to his investment portfolio.
  2. We stopped buying Lego and other toys. We only buy books or games. If he wants something else that we aren’t willing to pay for, he needs to save up for that or do some extra chores around the flat (the chores route is still a struggle, but hopefully, it will kick in once he needs more money).
  3. When/if he sets his mind on buying something, I try to delay this purchase for as long as possible. Often it works, and he either finds cheaper alternatives or forgets about it all together.
  4. From time to time, I run numbers to show him how much money he will have in 10 or 20 years if, instead of buying something he doesn’t need, he would invest that same amount now.
  5. We talk about how much money he would need to become financially independent and how to come up with such an amount.
  6. I ask him how much something costs before we put it in our shopping trolley. If it’s too much, he needs to find an alternative. (This is in the case of non-essential shopping.)
  7. He always had a budget for sweets. So, he knows that everything more than £1.50 (it used to be £1 only, but since the lockdown, the prices went up) isn’t an option.
  8. I also try to make him aware of sustainable choices and choices that impact our environment and the sustainability of life. This is an essential part of the process, which I believe goes hand in hand with becoming financially independent.
  9. I’m trying to be a good example and spend less by being a more mindful consumer.
  10. If I’m not going to buy him something, I try to give him a good reason why I’m not going to pay for a music library £20 or £30 a month (that was the recent craze).
  11. We calculate how many hours I have to work to purchase something I don’t consider essential.

Don’t get me wrong, he is still a child, and when we are out, he wants lemonade, ice cream and a cake, preferably all at the same time. So, we make him choose, and he is allowed to have either ice cream or the cake but not both. Those small steps, we have been introducing, create habits, and since we are all creatures of habits, those habits will help him build lifelong lasting positive change.

Talking about financial independence as a family opens up many doors and doesn’t push the money subject into the murky uncharted waters of shamefulness.

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