Many people who are parents today grew up in families where it wasn’t polite to talk about money. Yet with national debt at an all-time high, the average American household carrying over $15,000 in credit card debt, and recent college grads facing the highest student loan debt ever, many parents lack confidence when it comes to teaching their kids about money – at the very time that financial education has become more important than ever.

So how can you raise kids who are financially savvy?

If possible, start early

Most financial experts agree that children have a basic understanding of money as early as three. And financial habits are mainly formed by the age of seven, according to a study by University of Cambridge.

Most toddlers could care less about money, but a rewards system that consists of a favorite television show or a tasty treat can help these little ones learn the concepts of money early on. When your toddler displays particularly good behavior, give them a homemade coupon. You can attach the value of a small treat for one coupon and a greater reward for 3-5 coupons. Your child will start learning about saving, spending and delayed gratification before you know it.

As your toddler begins to grow, play ‘store’ to introduce the concepts of trading money for things (just play with items you’ve collected from around the house). If you play with coins this would be a great time to help your child recognize the different values of the different coins.

Budgeting basics

Allowance

An allowance is one of the best ways to teach your child to manage their finances well. However you determine your kids should earn their allowance, giving it to them on a regular schedule will help them learn these management lessons rather than sporadic installments. When deciding how much your child should get for an allowance, there are a few things to think about: their age, your family income and what their allowance is meant to cover.

As soon as your kids start receiving an allowance, teach them to budget by providing them a breakdown of where their money goes. Percentages and categories will differ between households, but you might consider something along the lines of 40% allocated to spending, 40% to savings, 10% to charitable giving and 10% towards family taxes (more on this later).

For younger kids, provide their allowance in small denominations for easy allocation and save them into separate labeled clear jars or plastic bins so they can watch their money grow in each category.

As soon as you think they are ready – probably between ages six and nine – take your child to the bank and open up a savings account. This is also a great opportunity to discuss the concept of interest. When your child is a teen, take them to open a checking account so that they can learn to responsibly use their debit card before leaving home.

Saving

A savings chart is a great tool for kids of all ages. When your child has a savings goal, whether that be a new toy or a car, create a chart with a picture of the desired item at the top. Then, for younger kids, figure out how many weeks of allowance it will take to buy it and draw a box for each week. The child can then fill in the box with a marker or sticker when the money for that week is saved. They will feel so proud of themselves when that item is theirs and they bought it with their own money.

For older kids, this may be a separate savings account that they deposit allowance and/or earnings into to reach their goal. But their satisfaction in themselves and the pride they take it their new possession will still reflect that of a younger child!

Spending

Teach your kids the value of making thoughtful purchases by allowing them to buy the luxuries they want. For example, keep food in the house for your kids to be able to pack their own lunches, but if they want to buy food at school, then they pay for it themselves. It could save you money, help your kids to be thoughtful about what they spend their money on, and likely ensure they eat healthier foods than what the school provides.

Kids don’t usually understand the cost of things aside from the sticker price, so it’s up to you to teach your kids about less obvious (or even hidden costs). If your older kids want to make a big purchase like an iPhone or a car, teach them about the added expenses of monthly data plans, insurance, repairs, etc.

When it comes to spending, your kids are going to make mistakes, and that’s okay! They will likely experience buyer’s remorse at some point and may turn to you for help. If this happens, compassionately let them experience the consequences of their actions, particularly if you warned them before they made the purchase. The pain they experience now will help them make better choices when the stakes are higher.

A deeper dive

Remember when you were working your first job and you were so excited to get your first paycheck? You’d worked hard for that money and probably already spent it in your head a dozen times. Then when that day came, you were shocked by how much smaller it was then you thought – because of taxes.

Issuing a “family tax” will creatively teach your kids about taxes from an early age. Steve Shaffer, Offers.com CEO, recommends a tax of 25%, but your family ‘tax bracket’ may differ. Then use the taxes to do fun things as a family.

Increase your teen’s investing savvy (perhaps your own as well) by allowing them to choose one company (or a few) that they know of and think are ‘good investments’ and the pretend to invest a specific amount in them. Follow the activity on the market together and see how you do.

Much like the family taxes example, you can teach your older kids powerful lessons about debt and credit now, too. If there is something they really want, give them three options: 1) Buy it now, 2) Save to be able to buy later, or 3) Borrow the money from you with an interest rate attached. Teach them that if they are going to borrow money it will cost them – and the longer they wait to pay it back the more it costs. Set up the rules of borrowing in advance.

Watch your language

Rather than saying “we can’t afford it” or even, “it’s not in the budget,” try saying “we’re choosing to not spend our money on that right now.” Talk to your kids when you decide not to spend money on something and be open about why you chose not to spend.

Particularly with young kids, teach delayed gratification by associating today’s “no” with tomorrow’s ‘yes.” For example, if you say no to a dinner out or a movie in the theater, explain that you’re not spending money on those things because we’re going to put that money toward an upcoming vacation. And, when your child asks a challenging question, try responding with, “Why do you ask?” This will help you understand their line of thinking behind the question before responding.