Despite the fact that student loan debt is at an all-time high, young adults are less equipped than ever to manage their finances. One survey found that nearly 20% of 15-year-olds in the U.S. did not learn basic financial skills like budgeting and comparison shopping, according to Youth.Gov. On top of that, high school seniors only scored an average of 48% on a financial literacy exam.

Luckily, we are starting to see a resurgence of financial literacy courses at schools across the country. In 2018, only 17 states required high school students to take a personal finance course. In 2020, that number rose to 21, according to the Council for Economic Education. And while it’s not legally mandated in every state, 45 states now include personal finance education in their curriculum. 

Regardless of whether your child’s school offers personal finance classes, you as a parent should teach your little one how to develop healthy financial habits. Teaching children about money will not only help them learn crucial skills like budgeting and investing, but it can also ensure they avoid things like predatory lending practices or taking on bad forms of debt. The following six tips will help you get started. 

6 tips for establishing healthy money habits

1. Start young 

Basic financial lessons can be taught when your children are still very young — before they even enter school. When they’re just two or three years old, talk about the value of money. For instance, teach them that while nickels are bigger than dimes, dimes are worth more. Once they’re four or five years old, you can begin playing grocery store with them, teaching them how much things cost and making sure they only spend as much as they have in their wallet.

2. Use cash when you can 

Once your children understand the basics of how much things cost, you can include them in your spending decisions. For example, if your total at the grocery store is $20.50, have your children count out this exact amount from your wallet to pay the cashier (if there isn’t a line growing behind you, of course). If possible, always use cash instead of checks or credit cards. Children are visual learners, and seeing $20.50 taken out of $100 in your wallet is a much more effective way of explaining the concept of budgeting than simply swiping a credit card. 

3. Make sure the lessons are age-appropriate 

As your children get older, the financial lessons you impart on them will naturally become more complex. 

  • Elementary school: When your children are young, your money lessons can center on broad ideas like budgeting or the value of money. Games (like the grocery example mentioned above) are a great way to engage kids in the conversation. Another popular and successful method is to create  “spend,” “save” and “give” jars to teach your children about the process of budgeting early on. Letting them decide how to split up monetary gifts or allowances into the different jars will also give them a sense of ownership over their finances. 
  • Middle school: Once your children are in middle school, teach them more complex ways to save, like shopping around for the best deals or avoiding impulse purchases. You can also introduce them to different payment methods, like cash or credit cards, and the pros and cons for each. 

It’s also a good time to drive home the importance of donating to charity. Establishing that habit when your kids are young can help encourage them to make charitable giving a part of their financial plan. 

  • High school: Once they reach their teenage years, you can start incorporating more complex financial lessons, like investing, compound interest and the importance of long-term goals. It’s also the perfect time to introduce student loans into the equation, especially if your child will be relying on them for college. 

You may also want to consider teaching about saving for big purchases like a house or for the cost of raising children. An introduction to the true cost of adulthood can help them avoid sticker shock down the line. 

4. Explain the concept of need vs. want

 Consider introducing this topic when shopping for school supplies at the beginning of the school year. While it may be tempting just to say “no” or “that’s too expensive” when your kid comes running up with the priciest (and prettiest) backpack, instead, explain that you have a fixed budget and there are things you need to buy, like pencils and notebooks, before you can spend any money on wants.   

It’s also important to lead by example. Engage your kid in conversations about your own wants and needs, especially if they’re shopping with you. Seeing you create financial priorities is a great way to help them make smart decisions in the future.  

5. Pay an allowance (and let them spend it how they wish) 

Experts believe the best time to start giving children an allowance is around age five or six. Although you can teach your children about the benefits of earning money by mowing the neighbor’s lawn or feeding their cat, experts typically advise against tying an allowance to good grades or chores. 

The amount you give is totally up to you. Try starting with 50 cents a week when they’re five and increase this amount by 50 cents every year, so that by age 10, they’ll be earning $3 per week. (Some experts recommend matching the monthly amount to the child’s age; for example, $8 per month for eight-year-olds, $9 per month for nine-year-olds and so on.) Consider giving a little extra money, such as $10 or $20, on special occasions like birthdays. 

Let them spend their money however they wish, whether they’d like to buy a bag of candy every few days or save up for a toy they’ve had their eye on. Over time, children will naturally begin learning the value of saving for big purchases. 

6. Include children in your family’s finances 

This one might not seem intuitive at first, but when done effectively, it can be very beneficial to your child’s understanding of personal finance. 

Including your children in the family’s finances can be as simple as talking about money-related matters with your spouse at dinnertime. For example, tell your partner you paid the credit card and electric bills on time so you don’t get a late fee. Or, explain that you returned several things you bought from Nordstrom because you realized they were impulse purchases. Ask whether your spouse’s investments have been doing well, and how the stock market has been performing overall. Over time, your children will learn valuable lessons simply by hearing you talk openly about finances and asking questions when they don’t understand certain things. 

Remember: This advice only applies to positive money conversations. Don’t let your children hear you argue about money with your spouse or express worry over your financial situation, as this can cause your children unnecessary stress and have a serious impact on their mental health.