Helping Kids Develop a Financial Mindset

Helping children grow into financially capable adults is an important part of setting them up for future success. The Consumer Financial Protection Bureau’s research into what leads to financial capability in adults identified three key building blocks. The first of these building blocks is what we call “Mindset.” Developing a financial mindset doesn’t mean thinking about money all the time. Rather, it means helping your child prepare for the real world so their finances can help them achieve their goals rather than hold them back. There are different milestones for different age groups but basic ideas revolve around:

1) Being future oriented. Thinking concretely about the future and recognizing that the actions they take today impacts their future.
2) Impulse control. Learning to recognize and exercise control over impulses, usually related to spending.
3) Prioritizing. Choosing between multiple things they may want by recognizing they can’t necessarily have everything at once.
4) Understanding limited resources. Similar to prioritizing, this means  recognizing that their resources (money, time, etc) aren’t infinite and their choices on how to spend them matter.

Obviously these concepts have different meanings at different ages, but you can start modeling (showing your kids how by doing it yourself) these at an early age.
In the beginning look for and encourage behavior that shows your children sticking with a problem (persistence) and focusing their attention on a single thing over time.

The second stage involves being able to begin to control their impulses (but not always, they’re still kids!), thinking about the future and planning ahead even if only for the next day, being able to wait for something they want even for a little while (the fancy term is “delayed gratification”) and handle more than a single task at a time.

The third stage is where you’ll see your children stick to one thing despite distractions, remember things they’ve learned before and apply it to something new, starting to make plans for their near future (“this weekend I want to…”), and starting to understand that resources are limited – they have to make choices on how best to use them.

The final stage is considered “advanced.” It’s where children (and teenagers and adults) follow through with things they’ve started, stick to plans even if there are stumbling blocks, prioritize their time and resources, and create goals for themselves that are specific along with a plan to achieve them.

So how can you put this into action? Model these behaviors for your kids and let them “help” with tasks that show how you make choices, prioritize, and think about the future. They don’t have to be financial. It could be planning a special dinner on the weekend: discuss what you want to have and decide together (your goals), then make a list for the store of what you need and what you already have (understanding resources available), set a budget for the grocery store trip and let them help pick out what you need (prioritizing and making choices about limited resources), then talk about how you plan to make the meal (planning ahead), and finally make the meal together (sticking with a task all the way through). This is just an example, cooking together may not be your family’s thing. But you can start to involve your children in situations where there is a chance to model, or even let them practice, the behaviors outlined above.