One way to ensure a better financial future for teens and kids is through money habits. Learn the good financial habits to develop in students.
What are good financial habits to develop in students – whether they’re still kids, or already teenagers about to bust through to the real world?
The kind that will help make their daily money decisions and challenges easier to navigate.
What is a Good Financial Habit?
A financial habit is an action you take with your money, regularly, that's hard to give up (be it a good action or a bad one).
A good financial habit is something you do routinely that supports your financial health in some way. Such as keeping you aware of what’s going on, saving you money, helping you spend according to your priorities, etc.
Some examples of good financial habits include:
- Signing into your bank account online and checking your digits each week
- Saving 10% of your income, automatically
- Tithing at church
- Cleaning out your wallet each spring
- Renewing your flood insurance each year
- Checking your net worth every six months
A bad financial habit is something you do routinely that sabotages your financial health in some way. Such as not opening your bills, overspending, not meeting tax and bill deadlines, etc.
Some examples of bad financial habits include:
- Spending more than you can pay off monthly on your credit card
- Over-withdrawing on your checking account
- Not opening your bills
- Being late on your taxes
Good Financial Habits for Students to Develop
Now, let’s dive into lots more examples of good financial habits for you to hardwire into your kids and teens.
Hint: stick around because after this section I talk about how to actually develop these habits in students.
Good Financial Habit #1: Check Numbers
Money Habit Frequency: Weekly (sometimes daily).
How much in money management/finances is missed because we’re simply not aware of things? That’s where this batch of money habits comes in.
Other reasons you want your students to get into the habit of checking their numbers:
- What they give their attention to, grows
- They’ll catch fraudulent transactions, bank errors, etc.
- They’ll be less likely to underestimate spending
Kids and teens likely don’t have a lot of numbers to check yet.
But here’s some to get them started:
- Wallet: Count how much money they have in their wallets.
- Checking Account Balance: How much is in their checking account, and is that more or less than they thought? (Much to the bank teller’s disbelief, I once caught a $98 bank error in my favor after checking my account and noticing it missing – I was 16 at the time, and she thought I had to be mistaken until I showed it to her in black-and-white).
- Piggy Account Balance: How much is in their piggy bank? Be careful with this one; it’s best to do a round of piggy-bank-counting after they've chosen a money savings goal (so they aren’t tempted to spend their balance out of excitement once they become aware of how much they have!).
- Leftover Allowance Money: They can shuffle this to their savings space (money jar, savings account, etc.) once they become aware of how much they have left. Doing so will make them less likely to spend it.
- Savings Account Balance: Savings accounts for kids tend to collect digi-dust. Instead, have your students check in on their balance. Did they earn any compound interest on their money? What’s the rate they’re earning, and can they earn something more at another bank?
- Update their Net Worth: Yes, you can have teenagers start to track their net worth. It’s going to be small, but what an eye-opening experience for them to start now (here’s why it might be a good idea to track your net worth). Not to mention, they’ll have an impressive chart to look back on versus if they start tracking in their late 20s/early 30s.
- Review their Statements: Reviewing financial statements is always a good idea, as they’ll be able to spot things like fees they might not have known they were charged, fraudulent charges, mistakes, how much they were paid altogether/put into savings, etc.
Bonus Tip: Parents can reinforce this money habit by setting up a weekly or monthly family banking day. This is a day when everyone can take care of any banking needs, such as depositing money into savings, opening a new account, using the ATM, depositing rolled money jar coins, etc.
Good Financial Habit #2: Manage Receipts
Money Habit Frequency: Weekly.
Receipts are absolutely everywhere! Not only can they give students real insight into their money behaviors and spending habits, but they also can be a source of extra cash.
- Earn Extra Cash: I use three different apps at the same time to earn cash back from all of my receipts. Your students can, too! Get them into the habit of scanning receipts into ibotta, Fetch, and Receipt Pal.
- Track their Spending: Help them use their receipts to track their spending on their free teen budget worksheet. Simply have them set up categories of spending (food, clothes, entertainment, etc.), then organize the receipts into these categories. Add up each pile of receipts, and record how much they spent during the week.
- Save Receipts for Taxes: It’s not likely your students will have purchases they can write off on their taxes, but it’s a good thing to go over with them now. They should keep a separate envelope where they can capture receipts for tax purchases throughout the year.
- Save Receipts for Reimbursements: They also want another envelope to keep receipts they can submit for reimbursement.
- Save Receipts for Refunds: Finally, have them keep an envelope or space to keep receipts for 30 or 60 days, so that they can return purchases that are defective/break/they didn’t use/etc. Great habit to get into.
- Review Spending Percentages: While they’re adding up all their spending, they might as well calculate their spending percentages. How much of their money went towards needs vs. wants? How much went into each category/type of spending?
Good Financial Habit #3: Check in with Money Goals
Money Habit Frequency: Weekly to bi-weekly.
Your students may or may not have ventured into the realm of savings and money goals. If not, then this is a great opportunity to get them interested.
And if so? Well, these financial habits will help get them closer to achieving them.
- Update their Savings Tracker: Savings trackers are great ways to track progress towards a savings goal. Updating these weekly or bi-weekly can show how on-target (or not) your student is.
- Calculate a New Target Date: They might be on target to save up the money by when they initially thought, or ahead/behind. Have them recalculate how much more they need to save up to get there, and how much longer it will take for them to save that amount of money.
Good Financial Habit #4: Plan How to Use their Money
Money Habit Frequency: Weekly.
Just getting kids and teens to think before they purchase (to separate the thought of “I want to buy something” from actually buying it) is a huge step in learning how to manage money.
These money habits will help them.
- Fill Out a Budget Sheet…and Come Back to It: A budget is not a piece of art. It should look more like a football playbook – tweaked, crossed out, erased…used. They should fill out a new budget, weekly.
- Come Up with a Savings Goals: I’ve got numerous articles on how to help your students pick a savings goal. Like short-term financial goals for high school students, how to save up for a car as a teenager, how to save up for an iPhone as a kid, etc.
- Come Up with their Money Percentages: Have them write out the percentages for how they plan to use their money (spend, save, invest, donate). Parents should approve these, and then the students should calculate how they actually DO use their money each week to see how that compares with their plan.
- Make Money Envelopes: Sometimes, the best budget plans get squashed right after they’re made. Because there’s no translation to real life. Encourage your students to create money envelopes for kids and stash their envelopes each week with how much they plan to use for each category.
Financial Habit #5: Keep Your Finances Organized
Organization is like 50% of the struggle when it comes to managing your money.
When your money spaces, money tools, and money documents are organized?
Well, you’re less likely to have important things slip through the cracks, more likely to actually keep your eyes on things, and things will be easier to track.
- Clean out their wallet/purse
- Make a space to collect their weekly receipts
- Make a space to collect bills, and add their due date to their monthly money calendar as soon as they’re open
How Can I Improve My Money Habits?
So, how can a person develop good financial habits – like the ones listed above?
Let me show you how to develop ANY good habit (hint: you can use this with money habits as well).
Have you ever heard the phrase, “humans are creatures of habit”?
I’ve got my own habits to attest to this – and I’m sure you do, too.
Like when I lock the back door each time I come in or go out. Or when I check my email first thing when I wake up (probably on the “bad” habit side!). Or how I have to add money to our retirement savings each month before I can think about funding our travel account.
We want to send your child off into the wilds of the real world with good money habits already hardwired into them.
But how is any habit hardwired into a child?
One of the ways is to get your child started on The Habit Loop. Research from author Charles Duhigg shows that a habit is actually a loop in your brain.
The three components of that loop are:
- The Cue: This is the thing that triggers a person to behave in a certain way. It’s very specific. For example, when my 2-year-old naps, my brain cues *seek decompression*.
- The Routine: This is what you do when you’re triggered – the behavior itself. From my example above, my routine (and one I’m keen to change) is to turn on the tv and catch an episode of a DVR’d series.
- The Reward: This is the reward that the person gets from behaving in that way. In the example, my reward for doing this is that I don’t have to think for about 45 minutes – my brain gets a break.
Duhigg summarizes it nicely:
“Put another way, a habit is a formula our brain automatically follows: When I see CUE, I will do ROUTINE in order to get a REWARD.”
We’re going to use this to our advantage so that we can instill some excellent money habits into your child.
How Do You Develop Good Money Habits? You Introduce Money Chores.
You’re excited about this, right?
Your child’s initial cue for doing any of the money habits you choose is you telling them to do it. You establish it as a routine chore in your household – just like putting their plates in the dishwasher, or scrubbing their bathroom counter – and you establish that there’s an expectation that chores are done.
That's right – I want you to get used to the idea of assigning your kids money chores along with their regular, age-appropriate chores!
By doing so, your child will eventually internalize this cue. It’ll become a natural part of their routine because they’re consistently carrying it out. Pretty soon – it’ll feel weird for them NOT to do it. Sort of like when you have the kids home all summer and then it feels weird when they go back to school and are not around.
And the reward? Well, it might be an external reward to begin with (depending on whether or not you reward them in some way for chores – here are child reward system ideas). But eventually, they’ll internalize the rewards as well.
Hint: You can speed-up that process of making them intrinsically motivated to do these money chores by tying the money chores to their personal saving goals.
Picking the Good Financial Habits to Teach Kids & Teens
As we discussed the way you want to introduce these money habits is by introducing money chores on top of your child’s normal set of chores.
You want to show your child that these are repetitive money tasks they need to do – and that YOU do – to be successful.
Psssst: you don’t have money chores/tasks/habits that you’re proud of? Now’s the perfect time to jump into this with your child. Your finances will completely change from doing this!
So, how do you pick the money habits to give your child?
The first place to start is to ask yourself two questions.
- What money habits are serving you well right now?
- Which of your money habits did you have to learn “the hard-knocks way”, and you’d rather your child start the habit from an early age?
Habits are sticky. Many of them will stay with your child and students long into their adult years (not all of them, of course). That’s why I’ve taken the time to list out good financial habits to develop in students – these habits will serve them and their financial life for years and years to come.
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