2 Ways To Ensure Your Kid Makes Good Financial Decisions—By A Psychologist

In an age where Instagram posts flaunt the latest luxury fashion trends, TikTok videos showcase lavish vacations and influencers endorse expensive gadgets, children are bombarded with a relentless stream of materialistic messaging. This is often coupled with thousands of “finance bros” on every corner of the internet promoting their latest “get rich quick” scheme.

Consequently, social media has bred a culture of instant gratification and conspicuous consumption, making it more important than ever for parents to teach their children how to build a healthy relationship with money.

Financial literacy and budgeting are life skills that significantly impact an individual’s psychological well-being and overall quality of life. Teaching children about money management from an early age can contribute positively to their psychological development and financial success as adults.

Here are two reasons why financial literacy can set your child up for success

1. Financial Literacy Builds Character

Teaching children to save for desired items helps develop the ability to delay gratification. They learn that their patience will be rewarded by gradually achieving financial goals rather than by impulse buying. This process helps them understand that immediate desires can be managed and investing in long-term goals is deeply beneficial.

Research shows that delaying gratification can positively influence financial decisions and curb risk-taking behavior, encouraging individuals to exercise restraint and avoid debt.

Additionally, as children learn to save for things they want, they may develop a sense of self-confidence in their decision-making abilities. This can translate to other areas of their lives, such as academics and personal goal-setting, boosting their self-image and overall psychological well-being.

2. Financial Literacy Shapes Financial Well-Being

Skills like budgeting foster a sense of responsibility. When kids learn to create and adhere to a budget, they gain insight into making informed decisions about their spending. This process instills accountability as they ensure that their expenditures align with their financial plans.

According to a 2021 study published in Financial Counseling and Planning, spending habits and attitudes around money management formed in childhood also significantly impact adult financial behavior. In other words, the earlier you start discussing budgeting in your home, the higher your child’s chance of becoming a financially responsible adult.

Here are three techniques to equip kids with the knowledge and skills to confidently navigate their financial futures:

• Model responsible behavior. Children often learn by observing the adults around them. By consistently demonstrating healthy financial habits—such as budgeting, saving and thoughtful spending—adults can set a strong example for children to emulate.
• Normalize financial literacy in everyday life. Consistency is key in helping children understand and internalize financial principles. Tailor these concepts to their developmental stage, gradually introducing more complex ideas as they grow. Regularly incorporate discussions about money into everyday life, whether through grocery shopping, budgeting for family outings or discussing the value of work.
• Provide opportunities for experiential learning. Hands-on experience is crucial for reinforcing financial lessons. Providing children with real-life scenarios—such as managing a small allowance, saving for a specific item or participating in family budgeting decisions—allows them to practice financial skills in a safe environment.

Children develop a sense of responsibility, independence, critical thinking and problem-solving skills as they learn to manage their resources wisely, weigh options, anticipate consequences and make informed decisions about their finances. This can reduce financial stress as an adult, contribute to better financial decision-making and create a stronger sense of financial security throughout their lives.

Do you think your spending habits could be affecting your child’s financial mindset? Take this test to learn more: Excessive Buying Scale