How to Teach Children to Build Healthy Money and Credit Habits

Whether they’re learning to brush their teeth or manage their schoolwork, kids often look to their parents for guidance. Financial literacy is no different. Only seven states currently require a stand-alone financial literacy course to graduate from high school, which means financial education largely falls on parents. That includes the building blocks of credit health.

The earlier that kids learn key financial concepts, the better prepared they’ll be to eventually navigate their own financial lives. Here are some simple ways to help your children learn healthy money and credit habits as they grow.

Elementary school

1. Model financial wellness

It all begins with understanding the financial basics. To engage your little ones, start small by showing your kids how your budget keeps your household running. It’s a great opportunity to illustrate how money comes in and money goes out. Where does that money go? Showing them what the family budget pays for (groceries, the mortgage, internet service) can help make these concepts more concrete for them. Tying it to kid-related expenses, like fees for their extracurricular activities, can drive the point home.

If you have a big-ticket purchase coming up, such as a family vacation or new TV, it could be a great opportunity to teach your kids how a credit card works. For example, you can explain that you’re using one to pay for some or all of your purchase — and that failing to pay the entire balance will trigger interest charges. Keep the language simple. The idea is to model how to use a credit card responsibly. You can make it fun by playing games on sites or apps like Bankaroo and Animal Crossing, which focus on teaching kids core financial concepts.

Though certainly not fun, you’ll want to be sure to periodically check your child’s credit file. Most minors shouldn’t have a credit report unless you’ve added them as an authorized user on one of your accounts (more on doing that below). Otherwise, finding a credit report in their name is a red flag for identity theft.

2. Provide opportunities to earn money

Making their own money can help children understand the value of a dollar — and give them a preview of how it’ll feel to eventually earn a paycheck and manage their spending. If you like the idea of your kids earning an allowance, the following chores might be a good starting point:

• Unloading the dishwasher
• Washing the car
• Raking leaves
• Folding and sorting the laundry
• “Babysitting” a younger sibling (for example, playing with them while you’re cooking dinner or working from home)
• Helping a sibling study

How much you pay them is up to you and can depend on how much work they’re doing — perhaps pay $1 per week based on their age. For example, a 10-year-old would have the chance to earn $10 per week. Establishing a weekly payday can help keep them motivated.

3. Set up a system for managing their funds

The “spend, save, give” rule can come in handy here. Every time your kids get paid, encourage them to spend a portion, save a portion for a long-term goal, and give some away to a charity of their choosing. There are even popular piggy banks that have separate compartments printed with each goal. You could also label three different envelopes so they can sort their cash accordingly.

If that stretches their earnings too thin, you can invite your kids into the decision making around charitable giving. Choose a monthly donation amount together, add it to your budget, then let your kids choose a different non-profit or cause each month. If possible, show them what their donations are helping to fund.

Middle school

1. Sign them up for their own debit card

By the time kids reach middle school, many are seeking more independence from their parents. Playdates at the playground will be replaced by meetups at the mall or movie theater. Instead of keeping their allowance in cash, which can get lost, a debit card for kids may be a safer (and more modern) option. It begins with opening a checking account, which is technically owned by the parent or guardian. Most are linked to an app that allows both the child and parent to monitor the account balance. Parents can easily transfer funds into the account as needed. Other safeguards may be available, like the ability to view your child’s spending and even limit how much they spend.

Another benefit is that your middle schooler is limited to the active balance, which can help teach them how to make their money last.

2. Let them take out a loan from you

Let’s say your middle schooler wants to buy an expensive video game. If they don’t have the funds to pay for it right now, you could offer to front the money — but with interest. Doing so can teach them how credit and lending works. They can either have the item today and pay more for it over time, or they can be patient and buy it at cost in the future. Crunch the numbers to show them how the interest can compound and how much more have they’d have to pay over time.

If they decide to move forward with a loan, draw up a simple, kid-friendly contract that outlines the repayment details. This includes how much their payments will be, when they’ll make them, and what fees they’ll encounter for paying late. (Yes, you can impose late fees!) If they default altogether, you can repossess the game.

High school

1. Open a teen checking account

Some student or teen checking accounts go a step further than debit cards for kids. Some are geared more toward 13- to 17-year-olds and provide greater financial autonomy, such as access to direct deposit and online bill pay. Your teen will still have their own debit card and be able to make transactions as they please. Mobile banking also allows them to track their spending and account activity.

Some banks let parents use an app to see their child’s spending but spending controls may be limited. Teen checking accounts can help older kids learn the ropes when it comes to banking.

2. Add them as an authorized user on one of your credit cards

When you feel your child is ready to begin using credit, you can consider adding them as an authorized user on one of your accounts. Although this is one of the best ways to establish their credit history, it does have its pros and cons — namely, your credit histories are now connected, for better or worse. And keep in mind that policies, such as a minimum age requirement, vary from creditor to creditor.

It's also important to remember that you’ll still be the one responsible for paying the bill. Whatever charges your teen makes each month, the expectation should be that they’ll pay you that amount when the bill comes due. If they rack up debt that takes you by surprise, you’ll be on the hook for paying it back. The reverse is also true: If you miss a payment, that could impact their credit.