The Short Answer
Teaching your kids about money is one of the most practical things you can do to help them avoid financial hardship as adults. Most people who end up filing bankruptcy didn't get there by being reckless — they got there because nobody ever taught them how to save, budget, or plan for the unexpected. Five core habits — spending on needs first, earning money through work, learning to share, planning for big purchases, and saving consistently — can give your children a foundation that lasts a lifetime. Starting these conversations early, even with young kids, matters more than most parents realize.
Nobody wants to file bankruptcy. I’ve yet to have a client or potential client sit in front of me and tell me how they are happy to see me. Some are happy to have the opportunity to get a handle on a turbulent time but I have not seen a single person that is happy to be filing a bankruptcy. Most bankruptcy cases are not filed due to people frivolously spending their money. Instead, its typically due to a failure to save money. Many of my clients end up sitting in front of me due to an unexpected medical situation, job loss or divorce. Although some paths to bankruptcy are unavoidable, others could have been avoided if there had been emergency funds, nest eggs and a game plan on how to best handle the otherwise unexpected.
To that end, budgeting is critically important to financial success. I was recently sitting with my eldest son (he’s four at the time I’m writing this post) and we were discussing money. Due to his age, it was a simplistic conversation but it made me think about what I, and others, could be doing to help our children understand money. Specifically, what it is, why it’s important and how to handle it.
Here are five important tips to help your children understand money.
Are you spending large amounts of money on necessities or wants? It is easy to want to go on a shopping spree or to buy the new pair of Nike Air Force’s or the new Yeezy shoe, but it’s important for children to understand where and when they should spend their money responsibly. Children will watch (knowingly or not) how their family spends money. Do your kids see you struggling to keep the lights on but see you purchasing a brand-new Mercedes? Those decisions will impress upon children what is important in life and how they should prioritize spending their money. Prioritize your debts and expenses and be sure you pay for the necessities first, save a little and then, if money is available, buy the fun stuff.
The last thing you want to do is hand your kid a $20 bill without them doing anything to earn it. We all know earning money means hard work. There can be chores to do around the house, an opportunity to help a neighbor pick up sticks or cut the grass or allow your child to start an entry-level job. Allowing your child to earn money will allow them to understand money is the result of hard work. It can give meaning to money. They then can make more educated decisions on how to spend their money. Is it worth working 3 weeks just to purchase that new pair of shoes?
The money we earn doesn’t always end up to be ours in the long run. For example, taxes. Whether by force or choice, we have to share our money. Encouraging your kids to think of ways to share money with others can help them prepare for how money will be spent in their future. Maybe they can set aside money each month to go towards a school fundraiser, a charitable contribution or, my favorite, a parent tax.
Vacations are a great time to allow your kids to have an idea of the type of financial planning that goes into ensuring a relaxing and fun vacation. From the moment you find that affordable flight or a great deal on a place to stay, explaining affordable choices can help your kids understand how to spend money in a fun, responsible way. An example of this is work with your kids in developing a savings plan to purchase the big-ticket item they would like. If they want the new hot toy then sit down with them and talk to them about how much they have to save each week to be able to purchase that item. Learning how to properly budget is a cornerstone to financial freedom.
Every little bit counts. Give them a chance to see their money adding up with every little bit they save – penny, quarter, dollar, anything! That way if they ask for the new iPad or a special toy you can say, “let’s see how much you have saved in your savings jar”. I do this with my own children. They have a “piggy bank” (same one as in the picture) that has four separate compartments. It has a compartment for savings, spending money, donating and investing. We discussed how we wanted to save our money and we determined they would set a percentage of each dollar in the four different compartments. This gives meaning to money and also allows your children to see the growth in the areas they have prioritized.
Are there other ideas or tips that you have seen work well with your kids? Would love to hear your ideas too!
Key Takeaways
- Model smart spending at home — children absorb your financial habits whether you intend to teach them or not.
- Tie money to effort by giving kids opportunities to earn through chores or small jobs, so they understand its real value.
- Teach kids that not all earnings stay in their pocket by introducing the concept of taxes, giving, and shared expenses early.
- Use real goals like a wanted toy or vacation to walk kids through building a savings plan and sticking to a budget.
- A savings jar or divided piggy bank makes the act of saving visible and rewarding, reinforcing the habit of setting money aside before spending.
- Emergency funds aren't just an adult concept — children who learn to save "for later" grow into adults who aren't one unexpected bill away from crisis.
Attorney Insight
The pattern I see most often after nearly 30 years of practice isn't reckless spending — it's a complete absence of any savings cushion. A job loss, a medical bill, a divorce: any one of those can be survivable if there's even a modest emergency fund behind it. When there isn't, a single bad month becomes a bankruptcy filing. The families who break that cycle are almost always the ones where someone — a parent, a grandparent — sat down early and made money a topic that wasn't off-limits at the kitchen table.
