Teaching money skills at every stage of your child’s life

By Melissa Sotudeh, CFP

Learn more about Melissa on NerdWallet’s Ask An Advisor.

No dessert until you eat your vegetables. Share your toys. Be nice to your sister. It’s funny how so many of the lessons we learn as children only become more important as we grow older!

This is especially true with financial lessons. Research has shown that the habits and skills established in early life — even if they don’t seem directly related to money — can have significant effects on our financial behaviors and well-being later in life. As parents, there are steps you can take at each stage of your child’s life to help him or her develop important skills that will be financially beneficial in the future.

Early childhood

While small children may not grasp concepts like budgeting andsaving, they can benefit greatly from practicing the habits — like self-control and delayed gratification — that will help them to achieve these tasks one day. According to a 2011 University of Chicago study, poor self-control in young children is associated with less success in key areas of managing money in adulthood like saving and investing, homeownership, and debt management. So the time spent practicing these skills can really pay off.

Here are a few ideas to teach your young children skills that will help them with their finances later in life:

• Have to have it: When kids ask for something they just can’t live without, make a list of what needs to be done before they can get it. So for example, tell them yes, we can go to the park, but first we have to tidy up these toys, and then deliver the invitation to your friend, etc. It’s a simple (though not always easy) way to practice delayed gratification.
• Playing games: A fun way to practice self-control is with games like “Red Light, Green Light” or “Simon Says.” For even more of a challenge, try playing an “opposite version” where, for example, “green” means “stop” or “Simon says take one step forward” means “Simon says take one step backward.”
• Talk it over and plan ahead: Even just the reminder to think or plan before completing a task can improve children’s ability to do so. The ability to plan has been tied to verbal ability, so talking through problems and answering questions like “What are you going to do now? What about after that?” may help to hone planning skills.

Middle childhood

At this stage, starting to share your family’s attitudes and beliefs about money can have a huge impact. Children absorb lessons whether parents intend them to or not — so make sure you’re “talking the talk” and “walking the walk” for the lessons you want to impart.

Here are some of the lessons you should be sure to model for middle-school-age children:

• Save, spend, share: Whether to give an allowance, at what age and how is a debate with no one right answer, but the important thing is that kids learn how to wisely use the money they receive as gifts or allowance. The key (for children and adults) is that money should be used intentionally, not wasted. A framework that many families have found successful is to teach children that money needs to go into three categories: saving for big-ticket items (or investing), spending now and sharing with good causes.
• Trade-offs of buying now vs. saving for later: The famous Stanford “marshmallow test” experiment showed that children who were able to delay gratification — by forgoing eating one marshmallow now as a trade-off for eating two marshmallows later — later ended up with better SAT scores, lower body mass index and higher educational achievement. To discuss this concept with children, you could have them think about whether they want to buy a small toy today, or wait until they have enough money for the bigger toy they want more. Or, when on vacation, provide a set amount of money for treats and souvenirs so your child can learn the price of impulse purchases versus planning his or her expenditures for the entire vacation.

Teen and young adult years

At this stage of life, kids start making their first “real” financial decisions — like what to do with money from a first job, or how to choose a first car. All of the habits and unconscious attitudes learned earlier start to come in to play for better or for worse!

Here are some of the habits you should start to encourage:

• Earn interest, don’t pay interest: While not all teenagers may earn a regular income, those who do should set aside a certain percentage of income to savings automatically. Emphasize the importance of earning interest to save up for big purchases or unexpected emergencies, not paying interest via debt. Parents may also want to match savings for a big purchase as an incentive.
• Clear expectations: Once teens start to become more financially independent, it is helpful to lay out who pays for what, and for how long. For example, who pays for gas? Will the child have to pay his or her part of the cell phone bill? How long can the child stay on the family cell phone plan or auto insurance?
• Financial safety schools: Too often, the cost aspect of the college search is left until the acceptance letters come in, and students apply to schools with only a vague idea of whether they are financially realistic. Instead, empower your child with knowledge. Be upfront about what you are able to contribute to the cost of college, and what will need to be covered by scholarships or loans.
• Live below your means: College is a great time to test out adult life with training wheels. Expenses are low, rent is shared with roommates, and campus resources provide a safety net. When that first “real job” happens and the training wheels come off, encourage your child to continue the “poor student” lifestyle and keep the cost of living low. Even if income allows for a more extravagant lifestyle, limiting costs from the start will allow your child to start saving for emergencies, and contribute to a workplace retirement plan.

Teachable moments

These are just a sampling of the big teachable moments throughout a child’s life. But sometimes the most impactful financial lessons are learned from everyday moments, like when your child sees you trying to find the best deal at the grocery store or notices that you save receipts or keep a record of your spending in an app on your phone. The opportunities to teach these important lessons are limited only by your creativity!

Melissa Sotudeh, CFP, is a wealth advisor with Halpern Financial, a fee-only independent advisory firm with offices in Rockville, Maryland, and Ashburn, Virginia.

This story originally appeared on NerdWallet.