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Tips & Strategies for Teaching Your Kids Financial Literacy

Financial literacy is an essential life skill that is often overlooked. Parents have a crucial role in teaching their children about money management from a young age. Studies have shown that children as young as three years old can understand the concept of money, and by the age of seven, their money habits are established.

Regardless of the age of your children, there are plenty of opportunities to include them in everyday purchases and give them insight into making certain financial decisions. Children learn by example. If they see you make good financial decisions, they are more likely to follow in those same footsteps as they get older. This article outlines four areas to exercise with your children.

Opportunity Cost

Children tend to make impulsive decisions. When they see a toy on the store shelf, they want to buy it, regardless of the cost and alternative options. Opportunity cost teaches kids, and adults, that there are trade-offs to the choices they make. If we choose one thing over the other, we will miss out on the possible benefits of the alternative. An activity you can try is before you go to the store having your child write down the benefits of buying the item – you’ll get to play with the football outside – and the drawbacks – you’ll have $20 less after the purchase. This concept will help improve their analysis and decision-making skills, not just in their finances but in any aspect of life.

Differentiating Needs and Wants

Having control over our own finances is important, and one of the best ways to maintain control and not overspend is through budgeting. Budgets are foundational; they serve as a road map for expenses along with creating realistic saving and spending goals. At a basic level, children can learn how to monitor their own inflows and outflows. This can empower them to manage their finances and understand that money is not infinite.

This also introduces the lesson of differentiating needs and wants. To kids, everything is a need; they’ve never had to make the distinction between needs and wants. At a young age, those words are often interchangeable to them. Explain that a need is necessary for your survival and well-being. For kids that need is food and proper clothing. For adults we have mortgage payments, utility bills, car payments, groceries, and more. Being able to distinguish between necessities and desires will help them be more mindful consumers. This awareness can prevent impulsive purchases and reduce the risk of debt due to poor planning or negligence.

The Time Value of Money

As your kids enter their early teens, it may be a good time to introduce the time value of money and the power of compounding interest. They may have some allowance or job money saved up, and what better way to motivate them to keep saving than pointing out that there are accounts available that can make that money grow at a greater rate. Having their money in a bank can not only keep it protected, but it will also pay interest (extra money) just for keeping the money there. inform them the longer they keep it in the account the more their money will grow over time.

For example, your child has $20 saved in their piggy bank. To make the concept of interest more visual you can act like the bank and physically pay them interest on their 20 dollars. In this scenario, we will use 2 percent or 40 cents in interest for the 20 dollars. Now they’ll have $20.40. To build upon this exercise, actively contribute the “interest” to their savings monthly. If the money is left untouched, then you will pay 2 percent on $20.40 or 41 cents. The interest will be added to their principle every month and that’ll increase the interest earned. Putting this into practice allows your child to witness the extra money the “bank” is adding to their savings every month.

Mistakes Happen

We’ve all made bad money choices at some point in our lives. Whether it was getting into credit card debt, making an unnecessary big purchase, or not being able to stick to a budget – talk with your kids about the mistakes you experienced. Allow them to ask questions, discuss the lessons you’ve learned and the outcomes from those experiences. Your mistakes are learning opportunities and you can talk about what you would have done differently in retrospect. By hearing about your mistakes, they can have a frame of reference and can look to avoid making similar mistakes in the future. It will also show that everyone makes mistakes and, most importantly, learn from them.

They grow up fast and before we know it, kids become adults who are responsible for making their own financial decisions. Including your children in everyday purchases such as grocery shopping and making a mortgage payment will increase their exposure to how money is earned, spent, and saved to maintain their way of living. It will also increase their confidence in making sound financial decisions and encourage them to come to you for guidance when they face challenges. You want your child to be prepared when that time comes, and it is important they are taught the basics of money management from a young to create good spending habits and become financially responsible in adulthood.


There are various resources available to educate your children on financial literacy. The Federal Reserve Bank of New York has comic books available that cover many topics in economics and finances, such as monetary policy, budgeting, and the federal reserve system. The Washington State Department of Financial Institutions website provides a variety of financial resources suitable for all ages (k-12), such as educational videos, printable materials, and interactive games.

At Community First Bank and HFG Trust we are committed to being your Financial Partner for Life. That means we will be here for you and your children, from opening their first bank account to guiding you into retirement. Visit our personal banking page to find out more about  products and services that can help you kickstart your child’s financial education.

Evelyn Ramos

Wealth Planner


This memorandum expresses the views of the author as of the date indicated and such views are subject to change without notice. Community First Bank, HFG Trust, and HFG Advisors have no duty or obligation to update the information contained herein. Further, Community First Bank, HFG Trust, and HFG Advisors make no representation, and it should not be assumed that past investment performance is an indication of future results. Moreover, wherever there is potential profit there is possibility of loss. This memorandum is being made available for educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services, banking services, or an offer to sell or solicit and securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. Community First Bank, HFG Trust, and HFG Advisors believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. This memorandum, included the information contained herein, may not be copied, reproduced, republished, or posted in any form without the prior written consent of Community First Bank and/or HFG Trust and/or HFG Advisors. HFG Advisors, Inc, is a wholly owned subsidiary of HFG Trust, LLC. HFG Trust, LLC is a Washington state-registered Trust company and wholly owned subsidiary of Community First Bank.