How to Teach Your Kids the Value of Money

by Ryan Guina

Money is on everyone’s mind. There are debts and loans to pay off, budgets that require constant readjusting, and the continuous stream of bills that appear every month like clockwork. Fortunately, this is a perfect opportunity to teach your child the value of saving money.

How to Teach Your Kids the Value of Money

Giving your child a real-world experience with money can help enable them to make smart financial decisions in the future. For starters, open a savings account online for your child. Compared to brick-and-mortar banks, online savings accounts have:

  • Higher interest rates
  • No minimums to open or maintain an account
  • No fees, penalties, or service charges
  • Access to the account 24/7
  • FDIC Insured up to the federal limit (currently $250,000), similar to brick-and-mortar banks

However, if you have a preference towards an in-person experience, local credit unions offer similar benefits. They may have higher interest rates, low minimums, and no fees compared to most brick-and-mortar banks. In addition, credit unions are NCUA insured (similar to FDIC, but specifically for credit unions) up to the same federal limit as banks. Still, there are several differences to bear in mind. Access to the account may be limited either by time or location. Use the NCUA search tool to find a local credit union for more specific information.

Through their online savings account, your child can see how their money grows based on their actions. Money deposited to the account can stem from a variety of sources including:

  • Money from family members for birthdays and holidays
  • Allowance for completing weekly chores
  • Entrepreneurship opportunities, such as opening a lemonade stand or selling their old toys and clothes at a rummage sale

A key ingredient in teaching your kids the value of money is to allow them the freedom to withdraw or deposit their funds at any time (most online savings accounts allow a maximum of 6 withdrawals without a fee per month). Teach them that this is their money to maintain. Once the money is taken out, it’s gone. In addition, they can never take out more money than they have in the account. If your kid wants to purchase items that are not within your budget, grant them the permission to purchase the item…using money from their account. If they don’t have enough, it’s their responsibility to come up with the funds to pay for it.

Finally, go over each month’s statement with them. Each month, point out the amount that they started with and the interest they had accrued. Demonstrate the relationship between the amount of money in the account and the amount of interest they receive. The more money in the account, the more interest they’ll accrue. In essence, you’re teaching them the power of compound interest, a lesson they will definitely appreciate later on in life.

The purpose of the online savings account is to teach your child the value of money and not necessarily to help your child save money for their future (though this is a potential by-product). Saving money is hard work and takes time. Having to save money for a long time in order to have the funds to buy what is desired requires your child to evaluate purchases more closely. It also teaches them delayed gratification. An Xbox 360 is much more meaningful to a child if it required saving money for a year prior to purchase.

Teaching your child early on the value of money puts them on the road towards becoming fiscally responsible adults in the future.

Published or updated January 21, 2012.
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{ 3 comments… read them below or add one }

1 Dividend Monk

Nice article. I had to teach myself pretty much everything I know about money; it would have been a lot nicer had my parents been more intentional about the subject.

Parents barely teach about it, and it’s barely taught in schools. Some students graduate from college without knowing what an IRA is.

Another good idea is to set up a small stock portfolio so that kids can learn about investing. Companies that they might know, like Coca Cola, Pepsi, Disney, Apple, and Hasbro might keep them interested.


2 Briana @ GBR

This is a great idea, and more kids need to learn earlier about money management. Allowances and accounts are great ways, but also teaching them how to save, and maybe invest too. I wish I would’ve learned about investing earlier.


3 Ryan

I do too! I learned about saving money, but not really about investing. I plan on teaching my daughter the basics as she grows up. Hopefully she will be able to build a nice little savings and investment account before she enters the world on her own!


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