Money conversations aren’t just for adults — they’re essential for kids and young adults too. Guiding the next generation toward financial literacy can set them up for lifelong success. From saving for education to understanding investments, teaching kids about money can start early and evolve as children grow.
Below, we explore practical ways to introduce financial concepts at different stages: younger kids, teens, and young adults.
Younger kids: Planting the seeds of smart money habits
Since children are naturally curious, their questions often start with simple concepts: “Why do we need money?” or “How do banks work?” This is the perfect time to introduce foundational ideas.
Starting with saving
- Provide piggy banks and jars: Introduce the concept of saving. Encourage children to set aside a portion of any money they receive for future goals. Help them choose a small, achievable target, like buying a favorite book or toy. Reaching that goal gives them a sense of accomplishment and reinforces the value of delayed gratification.
- Explain the concept of earning: Consider connecting chores or small tasks to allowances, reinforcing the link between effort and reward.
Introducing the idea of growth
Even at a young age, they can learn that money could “grow” when saved wisely. Saving is the first step. Investing can make their money grow and bring lasting rewards in the future.
| Here’s a simple analogy to help teach children:
Every dollar they save is like planting a seed. Saving more and not spending is like giving the seed sunlight and water. This helps the seed start to grow. Investing the savings is like giving the tree fertilizer. Investments help the tree grow and produce more “fruit” over time. This can lead to long-term savings. |
You can also use simple examples:
- Interest: “When you keep money in a bank, the bank gives you a little extra as a thank-you.”
- 529 education savings plan: Share that you’re saving for college or other education expenses and why it matters. Connect the importance to things they understand. For example, fulfilling their dream of becoming a teacher or doctor, taking care of family, or having more choices.
- Making it fun: Playing games like “store” or apps designed for kids can make financial lessons engaging. The goal is to help them build confidence and curiosity — not overwhelm them with a serious subject.
Teens: Connecting choices to consequences
Teenagers often start asking bigger questions: “How do credit cards work?” or “What’s investing?” This stage is ideal for introducing more advanced concepts to promote financial literacy for teens.
Budgeting basics
- Teach them to track their income from allowances, part-time jobs, or gifts. And to track their expenses.
- Show how small daily choices, like buying soda or coffee, can add up over time and drain their savings.
Understanding credit
Explain credit scores and why they matter. Stress that bad debt can impact future opportunities. Use real-life examples:
- “If you borrow money, you have to pay it back with extra money called interest.”
Investing 101
Explain the concept of investing as a way to grow savings and wealth over time:
- Stocks and bonds: Talk about different types of investments. For instance, stocks are like owning a piece of a company, while bonds are loans to companies or governments.
- Risk vs. reward: Use relatable analogies, like planting seeds (stocks) versus buying an already sturdy tree (bonds).
Education savings
Discuss 529 plans and how they help pay for college expenses. Maybe show them statements about the college savings account you set up or helped fund. Highlight the flexibility of this type of savings plan:
- Funds can cover tuition, housing, books, and even technology.
- If you do not use the funds, you can redirect them or roll them into a Roth IRA later.
Young adults: Building independence and wealth
As kids transition to adulthood, financial decisions become real. They could be experiencing student loans, first jobs, and retirement planning. Related questions might include: “How much should I save from my paycheck?” or “How much of my paycheck should go into a 401(k)?” and “How much should be withheld for taxes?”
This is the time to move from theory to practice when imparting money tips for young adults.
Managing cash flow
Explain the concept of managing cash flow, which goes beyond tracking or budgeting money.
- Teach the importance of living within their means and avoiding lifestyle inflation.
- Encourage setting up an emergency fund with three to six months of expenses.
- Discuss payroll taxes, which are mandatory, and federal/state tax withholding, which can be adjusted. Advise about under withholding and what that will mean in April the following year at tax time.
Investing for the future
Introduce concepts like:
- Compound growth: Show how investing, along with financial planning, can grow wealth over decades.
- Diversification: Explain why spreading investments across different assets can manage risk. Diversifying can provide balance with stock prices moving differently over time vs. all moving in tandem.
Retirement planning
Highlight the power of starting early. Whether you’re a parent or grandparent, you can demonstrate how retirement saving plans factor into your retirement goals:
- Roth IRA rollovers from 529 plans: Starting in 2024, you can turn unused education funds into retirement savings. You can convert up to $35,000 over your lifetime.
Let’s say a 24-year-old had a Roth IRA set up with $35,000 rolled over from a 529 plan. If they never add to the account and retire at age 67, their Roth IRA could have about $384,000. This is based on a 6% return rate over 43 years.
- Employer-sponsored plans: Contributing to 401(k) or similar plans, and potentially receiving matching contributions from an employer, can help with reaching retirement goals.
Financial independence
Discuss long-term goals like buying a home, starting a business, or traveling. Show how disciplined saving and investing can make these dreams achievable.
Why your answers matter
Financial literacy isn’t taught in most schools, yet it’s one of the most critical life skills. By starting early and tailoring lessons to each stage, you can empower your children and grandchildren to make informed decisions.
These conversations help:
- Build confidence and reduce anxiety about money.
- Foster responsibility and independence.
- Create a legacy of financial wisdom that can last for generations.
FAQs children ask about money
Younger Kids (Ages 5–10)
Q: Why do we need money?
A: Money helps us trade for things we need and want, like food, clothes, and toys. It’s easier than trading items because everyone agrees on a dollar’s value.
Q: What does “saving” mean?
A: Saving means putting money aside instead of spending it right away. It’s like planting seeds that grow into something bigger later.
Q: What happens if I spend all my money?
A: If you spend it all, you won’t have any left for things you might need later like taking care of a pet or replacing a toy. That’s why saving is important.
Teens (Ages 11–17)
Q: How do I start saving for something big, like a phone or a car?
A: Break your goal into smaller steps. Decide how much you need, set a timeline, and save a little from each allowance or paycheck.
Q: What’s the difference between a debit card and a credit card?
A: A debit card uses money you already have. A credit card lets you borrow money you must pay back later, usually with interest — so you end up paying more than the purchase price.
Q: How much should I save from my paycheck?
A: Aim for at least 20%. If you earn $100, save $20. It’s a habit that can help you build wealth over time.
Young Adults (18+)
Q: What’s the best way to pay off student loans quickly?
A: Pay more than the minimum when possible and avoid taking on new debt. Consider refinancing if it lowers your interest rate.
Q: Should I invest in stocks or keep money in savings?
A: Savings accounts are generally safe but growth rates can vary. Stocks can grow faster but have risk. Start with a mix, like contributing to a retirement account and investing in an index fund.
Q: What financial mistakes should I avoid early on?
A: Avoid high-interest debt, overspending, and ignoring savings. Start building good habits now.
Giving and getting guidance
Whether you find yourself explaining the magic of compound interest to a teenager or helping a young adult open their first investment account, your guidance matters. Start small, keep it age-appropriate, and make it relatable.
At Mercer Advisors, we offer a family office for your family — that means we’re here to help every family member through each state of life. Consult with your wealth advisor if children ask questions you’re not sure how to answer. If they’re from a young adult, it might be time to have them connect directly with your wealth advisor.
Not a Mercer Advisors client? We’d be happy to explain how a family office works. It goes beyond financial planning through life stages and integrates investment management, tax planning, insurance solutions, and estate planning. If you’re interested, let’s talk.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. All investment strategies have the potential for profit or loss. Diversification does not ensure a profit or protect against a loss. Hypothetical examples are for illustrative purposes only.
