4 ways to teach kids about money before their habits are set at age 9

As adults and caregivers, we generally look for ways to help our kids "do it better" than we did, and for me as a parent, teaching my kid to handle money is definitely near the top of my list, as I'm sure it is for many.

• Research shows that most habits around money are set by age 9, so it's key to start teaching early.
• Counterintuitively, letting your kids spend money and fail with money now will help later.
• Letting kids spend is an opportunity to teach the value of saving and delayed gratification.

Teaching kids to handle money responsibly at a young age will build positive habits and relationships with money that can yield much better adult decisions as the stakes get higher. 

When should I start teaching my kids about money?

In her book, "Make Your Kid a Money Genius (Even If You're Not)," author Beth Kobliner cited research showing children as young as 3 years old can begin to understand basic money concepts. I have a 2-year-old at home, and it is apparent that even at his young age he understands some of the most basic ideas, such as trading money to get what we want at the store, and not purchasing things unless they are on our "list."

Children first learn about the world through observation. What they see you, other adults, and older kids doing around them is what they will try to replicate. My son is always watching and listening to what we do, which means we are constantly being presented with opportunities to deliver money lessons. 

Money habits are set by around age 7 to 9

That's right, people! Many of the habits we carry into adulthood, particularly around money, are set by age 7, according to research by Dr. David Whitebread and Dr. Sue Bingham. Things like planning ahead, budgeting, delayed gratification, and returning borrowed items are habits that we develop in childhood and then carry into our adult lives. 

Thankfully, a 2014 study out of Brown University gives us a slightly larger window by pointing out that other habits, such as self-responsibility, are developed up until the age of 9. We know that habits like self-responsibility and the ability to make ourselves take action, even if we aren't particularly excited about the task, are important to learn when it comes to managing money. 

How do we foster positive money habits in our kids?

You can be a big part of money-habit formation for kids in your family, community, or workplace. It is less about providing formal lessons and more about you creating opportunities for kids to practice and learn with money. You can start as soon as you trust them to not put it in their mouth. Here are some things you can implement.

1. Let them practice handling small sums of money

Let your kid help you count out the cash to pay the bill at a restaurant and then hand over the money. Let your kids carry their money to the store and pay for a purchase. You, of course, can help them think through their purchase and what they can afford, but let them be the ones to handle the money and make the buying decision.

2. Consider giving an allowance

This has to be one of the most divisive topics for caregivers when it comes to their kids and money. Whatever your approach is to receiving or earning an allowance, the purpose of an allowance is to give your child the opportunity to handle small sums of money on their own. They need to have decision-making power with this money and the opportunity to fail. Failing now with tiny sums of money means they get to learn the lessons early that many of us don't get to until adulthood.

3. Build a desire to save

This starts by first encouraging your child to spend. It seems counter-intuitive, but if you dictate saving to kids, particularly for long-term goals like cars, college, and retirement, they will view it as if their money is being confiscated. 

Teaching kids to want to save starts with spending. Encourage them to identify wants and let them buy them with their own money. When they inevitably start identifying wants that cost more than they have, jump in and show them how to save for the goal. Practice "delayed gratification" for something small now, to get something better later. 

Gradually explore things that are more expensive and require longer periods of saving. Suggest splitting their money between spending now and saving for bigger purchases that they want. They will build a positive relationship with saving and a healthy understanding of spending.

4. Talk about choices when your kids want to spend their money

But don't stop them from buying unless it violates family rules or is a safety concern. "Opportunity cost" can be explained by identifying all the things your kid could do with the money they are about to spend and making sure they know that saying yes to one thing means saying no to all the others. After that, your job is done, and they need to be allowed to buy the junk toys that will break in a day or the candy bar that will be forgotten in an hour. They'll learn that waiting and being patient can mean better outcomes later.

Building positive habits comes down to you being a positive role model, demonstrating good money habits, having age-appropriate money conversations at home, and giving opportunities to practice handling money in real life and through play. Practice these techniques and you are well on the way to molding a future responsible money manager.