How to Raise Financially Literate Kids

As the father of two boys (ages 13 and 11), I want to raise financially literate kids. Ideally, this would be taught in school and then supplemented at home, similar to reading, but we don’t live in an ideal world! The majority of schools do not teach financial literacy, even though my kids are learning cursive and more about shapes than one can possibly imagine!

Considering my kids’ ages, I have no idea how all of this will translate into their adult lives, but here is what my wife and I do to help them build a solid understanding of money and wealth:

Normalize: My wife and I regularly discuss money in a kid-friendly way. This doesn’t mean burdening your children with financial stresses, but rather discussing paying a bill, how expensive something is, or the importance of saving for unexpected events. I cannot stress this step enough, as money is too often a taboo topic in homes. I also discuss the stock and cryptocurrency markets with my kids, and they often ask me how the markets are doing when they get home from school.
Explain: When my kids were younger, I told them a story about "Money Babies" to explain the concept of interest, and more importantly, compound interest. Essentially, a dollar gave birth to some coins, and then those coins gave birth to more coins, and so on. After that, we had them start investing $2 of their allowance each week into their own brokerage accounts. They would sit on my lap, click the mouse, and we would talk through each step. They would invest in free stock index funds, which are collections of publicly traded companies designed to track the U.S. and international stock markets—two free mutual funds with a weekly investment of $1 each! This is all about building sound habits and muscle memory, not about becoming a millionaire from their allowance! They enjoyed and understood it too! When we would drive around, they would always ask if they owned whatever business was outside their window, like Starbucks, McDonald's, Walmart, etc.! This was a simple way for them to understand the idea of owning a small fraction of thousands of publicly traded companies.
Self-Manage: As for their remaining allowance, it’s theirs to spend as they choose. This helps them learn about saving for a larger toy, delayed gratification, and the general cost of items. I know they are learning because I see how hesitant they are to spend “their” money. Giving them actual cash also helps, as it provides a tangible experience.
Incentivize: Last year, a neighbor asked my boys to help with yard work, and to our surprise, he started paying them. We matched what they made to incentivize them to invest even more, so that 100% of their pay could be invested. This money was invested into a Custodial IRA, which is a Roth IRA for children who have earned income. It will provide them with decades of tax-free growth and, more importantly, financial knowledge!
Giving Back: A few years ago, my wife and I were discussing how we contribute to our donor-advised fund each year, so that we can make a greater difference to certain causes we care about after the money has time to grow "generations of money babies." This prompted my kids to donate some of their own money to adopt two sloths and showed them that money can help make a positive impact for others, or in this case, sloths.

In summary, parenting is hard, and there is no perfect approach that works, but the above steps seem to be helping my kids understand the basics of wealth.

Disclaimer: This blog post is for informational and educational purposes only and does not constitute financial, investment, tax, legal, or other professional advice. The content is not tailored to any individual's specific needs and should not be relied upon as a forecast, guarantee, or offer to buy or sell securities or adopt any investment strategy. Opinions expressed are those of the author and may not reflect current market conditions or future outcomes. Use of this information is at your own risk.