Financial literacy is one of the most important subjects for a child to learn and carry with them into adulthood, and yet, it is one of the least taught subjects. Kids often learn their money lessons from television, their friends and all of the fractured and unconnected snippets they pick up from their parents. As a parent, you can help your kids start their financial life on the right foot without spending hours every day lecturing them.

Here are five ways to help your children along a fiscally responsible road:

Play the Grocery Game
There are many versions of the "grocery game," and you can even come up with one that is all your own. You can give your children a fixed amount of money and challenge them to purchase as much food as they can with it at the grocery store. For example, you can give them $5 each and a list of food that your local food bank needs. Your kids will have to put their comparative shopping skills to the test to be able to purchase as much food as they can with the limited amount of money. Another way to teach them to shop is to give them your grocery list and have them work out how much everything will cost and identify places where you could save money by buying alternate items.

Let Them Adopt a Budget Line Item
Older children who understand the concept of a family budget can start being responsible for a portion of it. Begin by giving your children a single budget category for a month and let them manage it. Choose an expense type that is discretionary – meaning that you can control how much or how little to spend. Common discretionary budget lines include groceries, entertainment and vacations. Kids can research online to find the best prices and to allocate the budget in the most effective way. Even if they make mistakes during the month, it will have little impact on your overall finances and they will learn a valuable lesson.

Show Them How to Use Budget Tools
There are several great budgeting and expense tracking tools available on the market. One of the most popular and easy to use is Quicken. If you already use a personal finance software program, show your kids how to use it. They can even set up their own budgets on it. They can plan their spending, savings and charitable giving. Learning to track all expenses is a great way to help them get ready for the time when they will be managing their own household budgets.

Set up a Practice Trading Account
Learning how to invest money and how the process works is critical in order to build an effective savings and retirement plan. Kids can learn how the stock market works by setting up a practice trading account and then "buying and selling" stocks. This is a no-risk way for them to learn to read financial news, see how world events affect the stock market, and practice determining how to diversify an investment portfolio. There are many practice trading accounts available online. Choose one that is directed towards children or that is simple to navigate.

Give Them Room to Make Mistakes
Everyone makes money mistakes at one time or another. Allow your kids to make them when they are young and the dollars involved are small. For example, if they absolutely must have the new toy of the season and spend all of their saved allowance on it, they won't have any money for other things for a while. Let them experience that and re-examine whether their spending choice was a sound one. Give them space to make some monetary decisions so that they learn for the next time.

The Bottom Line
Kids are never too young to start learning money lessons. The more opportunities they have to work with money and manage it, the more money savvy they will be as adults.

Related Articles
  1. Retirement

    How To Start Saving For Retirement

    If you establish these money-saving habits and patiently allow your wealth to build, you will be taking some huge steps forward in making your financial future more secure.
  2. Budgeting

    Five Rules To Improve Your Financial Health

    Learn five broad personal finance rules that can help get you on track to achieving specific financial goals.
  3. Budgeting

    How To Manage Lifestyle Inflation

    Learn how to manage your finances so that making extra money actually equates to getting ahead.
  4. Personal Finance

    Summer: Time For Teaching Your Kids About Money

    Use holiday time to teach your children about earning, saving and spending money.
  5. Personal Finance

    The Role Of Parents In Financial Education

    The need for a concerted program of financial education cannot be ignored, and even though many parents are ill-equipped to lead the charge, there are numerous programs they can support.
  6. Retirement

    Two Heads Are Better Than One With Your Finances

    We discuss the advantages of seeking professional help when it comes to managing our retirement account.
  7. Personal Finance

    How the Social Security Reboot May Affect You

    While there’s still potential for some “tweaking” around your Social Security retirement benefits, I’d like to share some insight on what we know now.
  8. Investing Basics

    Do You Need More Than One Financial Advisor?

    Using more than one financial advisor for money management has its pros and cons.
  9. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  10. FA

    Paying for College: Utilize These Top Hacks

    Saving money for college is difficult for many families, but it doesn't have to be. Here are some overlooked hacks to save money on college costs.
  1. Do financial advisors charge VATs?

    The Personal Finance Society (PFS) and with Her Majesty's Revenue and Customs (HMRC) have outlined when a value-added tax ... Read Full Answer >>
  2. Do Sallie Mae loans go directly to your school?

    Sallie Mae is the biggest provider of financial aid and student loans in the United States. The company operates as a private ... Read Full Answer >>
  3. What are working capital costs?

    Working capital costs (WCC) refer to the costs of maintaining daily operations at an organization. These costs take into ... Read Full Answer >>
  4. Do financial advisors get paid by mutual funds?

    Financial advisors are reimbursed by mutual funds in exchange for the investment and financial advice they provide. A financial ... Read Full Answer >>
  5. Do financial advisors prepare tax returns for clients?

    Financial advisors engage in a wide variety of financial areas, including tax return preparation and tax planning for their ... Read Full Answer >>
  6. Is a financial advisor required to have a degree?

    Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>

You May Also Like

Trading Center