Focusing on how to teach kids about money has always been important to me. I have always been a saver. Thanks to my parents, they taught me the basics at a young age. That’s why I strongly believe in the importance of teaching kids about money at an early age. I still remember the day my dad sat me down and showed me their bank account statement.
He taught me the importance of saving money by showing me how it actually works. And if it weren’t for my parents doing that, I wouldn’t be the person I am today when it comes to personal finance. That lesson always stuck with me and I have only become a better saver because of it. Here are tips on how to teach your child to save money.
1. Discuss Wants vs. Needs
It’s important to teach your kids that the hot new video game they want is a luxury and that the food they eat every day is a need. They shouldn’t be spoiled and not realize the importance of a dollar so they don’t waste money.
Needs are a roof over their head, a warm bed at night, food, water, and a loving family. Wants are that shiny new bike, video games, or the latest tablet or smartphone
2. Let Them Earn Their Own Money
Chores will play a big role in letting your kids earn their own money. In case you forgot, there usually is no free lunch. So if they want a new toy or electronic, have them clean up around the house, take out the trash, or even help with dinner.
This will instill the value of money and let them know how important it is to work in order to attain money. So next time Christmas rolls around and they get their Christmas gifts they will realize how much hard work it took to get those.
3. Set Savings Goals
Learning to save money at a young age is such an important thing to learn for them. Letting your children store their money in a savings account would ideally be the best route to take.
You can set a savings goal of $100 for a brand new bike they want, and if they have an allowance of $10 a week, teach them how long it would take to reach that goal.
4. Provide a Place to Save
Your kid needs a place to save their money — and it can be better than a piggy bank (unless they are younger). There are savings accounts or checking accounts for children that can really help them learn more about saving money.
If they have a tablet or smartphone they can see how much money is adding up each time they save. You can even teach them about money-saving apps to help them learn more ways to save.
5. Leave Room for Mistakes
Just remember that kids aren’t perfect, they are learning things for the first time so they won’t always make smart financial moves as a child. And they won’t really understand the value of money and the value of saving from the beginning. However, with patience and the right teaching style, the insights will trickle down to your little one.
6. Talk About Money
Simply talk about money. Teach them about banks, how to save, ways to earn extra money as a child, how to budget, the stock market, saving for college, and how the economy works. Sure, you may not be a personal finance expert, but you probably know enough to teach them the basics to start.
7. Teach Them About Investing
If you really wanted them to learn about personal finance then investing would be a smart route to take. You could open a brokerage account in your own name and place the money they saved in the account and work with them and teach them about trading stocks.
While this may take more time to learn, it will have a lasting effect on your child’s future. What kid in middle school knows how to invest (I sure didn’t).
Only 23% of kids say they talk to their parents regularly about money, according to survey results shared by Money Confident Kids.
In a 2014 survey of 15-year-olds in the United States, the Organization for Economic Co‑operation and Development found that 18% did not learn fundamental financial skills that are often applied in everyday situations, such as building a simple budget, comparison shopping, and understanding an invoice.
That’s quite a sizable knowledge gap for an age set poised to start driving a car and applying for college and student loans.
Military families often have an abundance of opportunities for teaching teens about money. Each time you move to a new location or buy a new home, for example, you usually need to create a new budget surrounding the current cost of living and any changes in parental employment and housing expenses. Situations like these are excellent opportunities to involve kids in real-world money talks.
If talking to your kids about money is a goal you have been thinking about, here are a few simple steps and resources to help you get started.
Start bringing kids into the conversation, rather than saving financial talks for when they’re out of the room. It’s okay to have budget conversations with your spouse in front of your children, including talking about paying the monthly bills or saving money for your upcoming PCS move.
You’ll be a healthy role model for your kids. A good friend who runs her own company from home often lets her 8-year-old son help “run the business” by involving him and talking to him about the finances, including reviewing income and expenses.
It’s all great exposure to terminology and critical thinking, plus it adds so much more meaning to the work our kids see us do on a daily basis.
Make money more visible. For most of us, paper money is seldom used as much as it used to be. With so many of our financial tasks handled online or automatically, kids can miss out on the exchange altogether, if we don’t point out what’s happening.
Whether you decide to take out cash from the ATM and let your child count it or manage it for a few days, or you have them sit with you while you pay a few bills or look at your bank account online, you’re helping them to learn valuable lessons in money management.
Add a fun spin by pulling out the foreign coins and bills you’ve collected on your military travels to show how money looks different around the world.
Involve them in making a purchase. For little kids, a great first experience could be to pick out a small something together at the coffee shop or grocery store. You can point out the price tag (or show that there are several options and discuss how you might choose between them).
Then, you can help them count the cash or change to buy a piece of candy or a drink, let them present it to the cashier, and allow them to make the change. Involving them in an everyday purchase like this can help them tune into the exchange of money for a good or service.
For an older child, focus on the research and decision-making involved in making a bigger purchase, such as a new lawnmower, annual vacation, or family car.
Start with one small goal or improvement. Maybe you’ve wanted to talk about money with your kids and are ready to get started, but the teaching points seem overwhelming.
Don’t worry about stock trading on the first day. You can accomplish a lot just by making one small, intentional change—such as bringing money into your daily conversation. Pick a natural time each day to share with your kids about money:
While…
making a grocery list, chat about including seasonal produce rather than items priced at a premium.
sorting sales flyers from the mail, discuss temptations to buy or the concept of a bargain.
paying an invoice, show how you pay some bills by check and others online.
depositing a paycheck and checking your account balance, talk about reasons you move some of the funds to your savings.
updating your budget to reflect new expenses after a recent PCS move, discuss cost of living in different areas and/or typical household expenses.
researching options for a larger purchase, discuss ways to pay or finance and how these options impact your monthly budget over time.
These are all good opportunities to a practice involving kids in the process by asking questions and soliciting their ideas and input.
At any age, there are valuable lessons you can teach your children about money. Even as adults, often the first place we direct a financial question is to our parents.
You are unquestionably qualified to prepare your kids with the important foundations of money management.
9 Mistakes Parents Make When Teaching Kids About Money
Teaching kids about money can feel like a perpetual balancing act. One day you’re working to instill good financial behaviors, and the next day you’re trying to help them break bad habits. In many families, the subject of money management comes up innocently enough, often as the result of money a child receives as a birthday or Christmas gift.
Anyone who has children is already familiar with the alarming intensity that newfound money burns a hole in the pocket of its young recipient. Trying to educate a five- or six-year-old child on the benefits of sound financial management can seem like it’s more trouble than it’s worth. However, the sooner they learn to save before they spend, the better off they’ll be, right?
There’s an adage in the parenting world that says, “More is caught than taught.” Children are incredibly perceptive. Whether you realize it or not, they’re always watching what you do and deciding whether it lines up with what you say.
They’re not necessarily looking for subject matter expertise; they’re looking for consistency. This is true in personal interactions, but it applies to money matters as well. Despite your best intentions, your personal habits may be sending mixed signals when it comes to financial responsibility.
Avoid These Bad Money Habits When Teaching Children Financial Responsibility
As you look for teachable moments and research the most effective ways to help your children learn the value of money, keep an eye out for the following bad habits that can leave your child frustrated and confused:
1. Avoiding the subject completely
When it comes to topics that parents would rather avoid discussing with their children, financial matters probably rank just behind the birds and the bees. But just like the facts of life, if you’re not teaching your child about money, you can be sure somebody — or in this case, something — is.
From pop-up windows online to sponsored ads on mobile apps to commercials on TV, it has been estimated that the average child is exposed to approximately 3,000 advertisements per day. It doesn’t take a media strategy expert to know those ads aren’t exactly encouraging responsible financial practices.
Taking the time to have awkward or inconvenient conversations about money with your young child will help you create an open line of communication that will benefit you both for years to come.
2. Assuming they’ll learn it on their own
Financial responsibility requires discipline, and discipline rarely develops without focused, intentional effort. In the eyes of a child (and many adults, for that matter), spending is always more fun than saving.
When you spend money, you get something in return. Saving relies on the principle of delayed gratification, an unpopular concept for many kids. It would be nice to think that as children grow and mature, they will naturally come around and see the benefits of being financially responsible.
While many aspects of growth follow this progressive pattern, research has shown that a person’s financial habits may be established as early as seven-years-old. Leaving children to figure out money management on their own increases the likelihood that they will wind up with a collection of bad habits they’ll need to break once they move out on their own.
It’s much easier to form good habits than break bad ones, so stepping in to help your child learn how to handle their finances is a time investment that offers valuable returns.
3. Paying them for things they should do for free
If you’ve ever responded to one of your child’s (many) questions with “because we’re a family, and that’s what families do,” you were on to something. When it comes to keeping the family home in order, household chores are part of the deal.
When everybody pitches in to do their part, nobody feels overwhelmed. That’s what families do. But if you decided to pay your child for completing basic chores, it’s possible that you might be undermining that feel-good family principle.
While chores can be useful tools for teaching personal responsibility, negotiating financial terms when you want your child’s assistance can backfire on you. A shiny quarter may be enough to convince a young child to pick up their clothes, but a 12-year-old will probably demand a much higher fee to empty the dishwasher.
Rather than setting a precedent that offers financial rewards for tasks that are part of maintaining an orderly house, it may be more beneficial to establish an allowance system that is not related to chores.
By doing so, you can help them learn the fundamental difference between personal responsibility and financial management.
4. Controlling all their spending
As resident grown-ups, parents tend to think we know best. And that may very well be true. But when it comes to your children’s financial choices, it may be helpful to give them a little more freedom than you think they should have.
Within reason, of course. If you micromanage every spending decision your child ever makes, not only will they never learn to think for themselves, they’ll probably never experience the negative consequences of poor choices.
It may seem counterintuitive to step back and let them spend their money foolishly, but many of life’s most lasting lessons come through tough situations. Let them make their own choices from time to time, but when you do, be sure to let them navigate the consequences of those choices as well.
Allow the bad decisions to hurt a little, and let them take pride in their good decisions. Giving them the freedom to experience the ups and downs of financial choices can be an effective way to help them understand the value of a dollar — and the importance of making smart decisions.
5. Underestimating what they can understand
Kids are smarter than we think. You’re probably comfortable teaching your youngsters about basics like spending and saving, but have you thought about broaching topics like investing? While childhood may be too early to focus on the details that take finance professionals years to figure out, it’s not too early to start focusing on the concept of investing.
In a recent interview with CNBC, renowned investor, Kevin O’Leary, shared how he used a see-through piggy bank to teach his small children the power of investments. When his children would put money in their piggy bank, O’Leary would add additional pennies each night when they slept. “The idea was that they would wake up and see there was more there,” he explained.
“That was for them to understand the concept of compounded interest.” You don’t have to explain all the intricacies of investment strategy to your children, but as the Shark Tank investor demonstrated, the younger you teach them about investing, the better off they’ll be.
6. Forcing them to save
It can be tempting to make your children save money whether they want to or not. As an adult who understands the power of compound interest, it’s only natural to want your child to start saving sooner rather than later. But if the collective experience of previous generations has shown us anything, it’s that the more you demand a child do something, the less they actually want to do it.
The benefits of saving and earning interest are substantial, but you’ll do your child and their financial future a favor by encouraging them to set money aside instead of demanding it.
To teach our children how to be smart with their money, we have to let them know we’re on their side. If we turn every financial conversation into a win/lose scenario, we risk damaging the personal relationship that is far more valuable than any financial gain.
7. Shopping without them
Without practical application, all the financial teaching in the world is little more than theoretical ideas. In a world where an increasing number of financial transactions are completed virtually — either online or via mobile apps, kids tend to view purchases as painless formalities. If the only time they see your shop is when you buy something from Amazon, it will be hard to convey even the most basic fundamentals of financial management.
So, rather than leaving your kids with your spouse or a sitter the next time you go to the store, take them with you and let them get in on the action. Comparing physical products can help them understand the difference between cost and value. Sharing your shopping budget with them will help them learn how to navigate the flood of marketing messages and choose purchases wisely.
And even though debit cards and mobile apps offer quick and easy check-outs, consider using cash and letting your child observe the physical exchange of money for goods. This old-school practice may be just what your child needs to understand that once you spend your money, it’s gone.
8. Failing to teach them about credit and debt
Perhaps more than any other financial subjects, credit, and debt have the potential to sidetrack your child’s long-term financial stability. While this may be a subject too deep for the preschool crowd, you’ll certainly want to address it with your child no later than their junior high and high school years.
Without a proper understanding of the true cost of debt, your kid may be in for a rude awakening when they head off to college and get inundated with credit card applications. Without the proper understanding, they may be tempted to sign up for credit cards and equate their newfound credit limit with “having money.”
The easiest way to introduce them to the effects of interest is by lending them a small amount of money and setting a time frame for them to pay you back — with interest. This can be particularly effective when they earn money by working side projects or part-time jobs.
When they see that quick access to money requires them to pay back more than they borrowed, the value of their hard-earned dollars will take on a new significance.
9. Neglecting the subject of generosity
Teaching kids to be financially responsible is a big deal. After all, much of their life will be spent earning money and trying to manage it. However, if all your instruction focuses on them, their money, and how they can control it, you’ll miss the boat.
One of the best things we parents can teach our children is to be generous and use their money to help others whenever possible. But there’s a catch. Generosity starts in the heart and carries over to material things, not the other way around.
To properly teach your child how to be generous, you’ll need to model it for them. How? Good question. Start by talking with your children about the experiences of people outside your family. Think about how various experiences make them feel and look for ways to help whenever possible.
When you notice your child being generous towards a friend or family member, point it out and praise the action! Last, but not least, sit down as a family and choose a charity you can support with your time and your finances.
When generosity becomes a family trait, your child stands a far better chance of carrying on the tradition when they leave home.
If you’ve followed along for the last little bit, I’ve shared lots of guidelines on 30days. As I’ve mentioned in each post, these ideas come from research and curiosity as my kids grow older. I want them to be self-sufficient, successful adults and hope to teach them the important stuff before they leave my home. Today’s edition is about money.
Teaching Kids About Money
It’s not the first time I’ve talked about money. I want to get a little more into the Knitty gritty of what is appropriate for kids to know and at what age. As always, these are guidelines. There are some kids that are extremely responsible and there are some that need more guidance.
Take what works for you and apply it to your circumstances. I read that basic money habits are set by 7 years old and even as small as 3-year-olds can grasp financial concepts. So it’s never too early to start.
And if your kids are older, it’s never too late to learn. As an adult, I still struggle with some of these concepts. That’s why my goal is to help provide financial education for kids and let them understand the importance of being financially savvy.
The main things I want my kids to know are:
Wants vs. needs
Money basics- denominations and value
Learning how to account for money
How to save money
How to budget
Credit cards and credit reports
In future posts, I’ll tackle each of these and how I intend on making sure my kids know about them. For now, I want to put it out there as my plan so that I have some accountability in the parenting department.
Staying on track with your financial goals and developing better money habits doesn’t have to be a behind-the-scenes job. In fact, being open and teaching teens about money can help them develop healthy habits from an early age that later translate into smart financial decisions in adulthood. Learn how to teach kids about money and get them involved with the family budget in these age-appropriate ways.
Importance of Money Saving For Kids Ages 5–10: Get Them Thinking
It’s never too early to start teaching children about money. Rather, the earlier, the better. For example, if you like coupons, you can get your younger children to help you cut out coupons each week.
When they start to understand how the process works, you can make a game out of who can find the lowest price on an item. Getting them in the habit of saving money by waiting to purchase items at a discount also helps them practice patience.
If they’re especially excited about the prospect of cutting back on expenses, let them brainstorm ways that they could save money on everyday expenses. Are there activities or monthly expenses that you can cut back on as a family, such as eating out at restaurants?
Do they know the importance of saving on utility costs by doing simple acts like turning off the lights when they leave the room? Turning off the water while they brush their teeth?
Ages 11–15: Give Them Some Responsibility
As they become preteens, learning how to teach kids about saving money is crucial. This is when you can begin to stress the importance of saving up your hard-earned money. At this age, they may be receiving compensation for doing chores around the house or tasks around the neighborhood, such as walking dogs or raking leaves.
And, of course, there’s likely an abundance of items at the store that they would love to purchase with that money. Stress that they must save their money to be able to afford those nice things. Consider letting them open their own accounts at the bank for this purpose.
This is also the prime time to discuss how debt works. You can use items that they are currently interested in to show how much the items would actually end up costing if they borrowed the money, with interest, to purchase them.
When the money is officially saved up and it’s time to make the purchases, they’ll be that much more appreciative of the items. Likewise, you can discuss the opposite of paying interest on debt: the process of earning interest on money that’s put into savings.
Ages 16 and Beyond: Show Them the Importance of Preparation
At this age, your children are hopefully well versed in the art of saving money, both with discounted prices and saved-up money that was earned. Now it’s time to show them what it’s like to be accountable for spending certain amounts of money on a regular basis — that is, how to pay bills responsibly.
In addition, introduce them to the concept of paying now to save later. Examples of this include paying for insurance, as well as a home warranty. Consider putting a new expense in their name, so they can practice allotting money each month to go toward the bill.
We can make teaching our kids about money part of everyday life
When it comes to teaching kids fiscal responsibility, as of this writing, only 21 states require high school students to take a personal finance course.
That’s up from just 17 states two years ago. And as parents, next to discussing the birds and the bees, teaching kids about money ranks as one of the most intimidating conversation topics a parent can face.
A recent survey revealed that although 85% of parents agree it’s important to have financial discussions with their kids about saving and spending money, 41% of those same respondents admit a reluctance to discuss money matters.
As a parent of three young children myself, I can relate to this. But it really doesn’t have to be that intimidating. If you don’t know how to get started (or if you’re just worried about saying the wrong thing), here are a few ways to get started.
Start early. Start small. And keep it simple.
Start early
You’d be surprised to learn how early kids start picking up concepts about money – and how quickly those ideas can solidify. According to researchers at the University of Wisconsin, Madison, children can grasp economic ideas such as value and exchange as early as age 3 – albeit at a very basic level.
This is also when kids are developing the cognitive skills to learn concepts such as delayed gratification, which is a cornerstone of financial education. And it doesn’t take long for that early understanding to take root.
According to a study by the University of Cambridge, by the age of 7, children are already forming money habits. (And habits, as we all know, are hard things to break.)
Start small
Having an open, up-front discussion of money will help kids learn that it’s not a taboo subject, or one to be feared, but rather a natural, ongoing part of everyday life.
That doesn’t necessarily mean family sit-downs with everyone gathered around the table as most families are strapped enough for a time as it is.
But weaving these discussions into regular family activities can be an easy and memorable way to get your message across.
Watch for opportunities to inject money discussions into your daily interactions with your kids. For example, you could explain why you chose a particular brand at the supermarket based on price.
Or you can use the commercials on television to discuss basic financial concepts. Finding ways to weave the discussion naturally into regular interactions is the key. Your kids may not understand everything you’re telling them, but they’ll come to understand the importance of the subject.
Even at elementary school-age, let kids manage a small amount of money, whether allowance or from birthday gifts. Let them spend (or give, or save, or invest), and also let them feel the consequence if they run out of money.
For example, what if they spend too much on new shoes, and don’t have enough to go to the movies with friends? What a great way to learn while the stakes are relatively small, but grow into adulthood already having that experience.
Keep it simple
Help your kids understand the four “buckets” into which money falls: spending, saving, investing, and donating. Each has a unique role in their financial future. And while they may not fully grasp the differences at first, it’s important to expose them to the concepts.
Spending, they’ll no doubt understand fairly quickly. That candy bar (or Playstation) costs money. Explaining the difference between saving and investing, however, can sometimes trip parents up.
One approach is to define them in terms of longevity; saving is intended to provide short-term security while investing is meant as money for the future, whether for college or retirement.
The last bucket, donating, is another monetary concept that comes fairly naturally to kids, particularly in an age of cause marketing and social justice.
Helping children learn the value that can come from responsibly and thoughtfully giving money to a worthwhile cause, person, or organization can be one of the most valuable financial lessons they’ll learn.
Depending on their age, an effective strategy to explain the four buckets can be to use simple cans or jars with each one dedicated to a category. This encourages them to decide how much they wish to devote were and gives them a tangible example of what might otherwise seem like an abstract idea.
It’s OK to not be sure
Relax. It’s only natural to have reservations about initiating a money conversation with your kids. But even small efforts to teach your kids about money will go a long way toward setting them up for a lifetime of financial security.
So have fun with it and show yourself (and your kids) lots of grace along the way. Start early, start small, and keep it simple.
One of the great disconnects of American society is that we have a capitalist economy yet we send our young people out into the world without a good working knowledge of how finances function.
Whether it’s through a desire to shield them from the harsh realities of life or because of a lack of understanding about how to teach kids about money, we are not preparing coming generations for the rigors of investing, credit, mortgages, and all the other facets of living in a market-driven environment.
While it would be nice if educating the young about these money matters were made mandatory in all of our nation’s schools – and perhaps, someday, they will be – for now, this introduction to our way of life must begin at home.
With that in mind, here are eight important questions on the topic of teaching kids about money.
Is financial literacy for kids really that important?
It is essential for children to learn about money because it will help them live a successful life, secure in the knowledge that they are financially stable, and have genuine respect for the value of the money they earn. In this day and age, children rarely see cash change hands.
Their exposure to transactions involves watching mom or dad swipe or click to make a purchase. Because transactions have become so seamless, it is hard to grasp that there is actual money behind that purchase — money in a bank or on a card that comes with an interest payment.
Because of this loss of physical context for money, it is especially important to stress the why of it – that buying things and paying bills is not a magic act.
At what age should parents start teaching kids about money?
If they are old enough to ask for things, then they are old enough to learn about money. A four- or five-year-old can learn how money is used, even if it’s not using money directly. For example, when a young child behaves well (displaying basic manners like saying “please” and “thank you”) or completes their assigned tasks (getting dressed for school or giving the pet water) they get a gold star.
In these cases, their assigned task is their job and the gold star is currency. They can redeem that star for a favorite snack (simulating the purchase of goods), or save up their stars for a bigger reward (simulating a savings account). As they get bigger, say from ages six to eight, those gold stars can be transitioned to an actual allowance.
How does an allowance contribute to teaching kids about money?
When done correctly, an allowance should mimic the role of having a job and earning every penny the child works for. Once a child earns an allowance they can go to the bank to make deposits in their savings account.
They can also use the allowance to buy goods but always use cash. Determining if they have enough for the purchase, figuring in sales tax, counting money to the cashier, and counting the change they get back are all part of the learning process. It’s also important to stress to them how to allocate their allowance money; a certain percentage to savings, a certain percentage to charity, and some for spending.
The specific percentages can be worked out with the child, as long as they understand that not everything they have is immediately expendable.
Does a savings account contribute to kids’ financial literacy?
This is an aspect of adult life that the child can begin experiencing at an early age. It demonstrates the uses of a bank and allows them to really get the feel for having their own money to deposit. Some particulars to emphasize:
Printing a balance and showing them how their balance keeps increasing every time they make a deposit is an important teaching tool.
Watching the balance grow helps explain the concept of interest.
Learning the physical handling of money, not just debit cards, so that money seems more tangible.
Learning that an account is a safe place to put the short- and long-term savings.
Allowing them to build a relationship with a banker that will help them when it comes time to buy a car or, further down the road, a home.
When should some of the more advanced concepts about money (taxes, insurance, stock market) be introduced?
The more advanced concepts should be introduced as kids get to high school age – and they can now be introduced in real-life situations. For instance, when they are learning to drive, they should learn about insurance. When they are thinking about getting a job you should talk about taxes.
What are some good ways to engender financial savvy?
Introduce them to books at an early age that reference finances.
Parents can open joint bank accounts with a minor and allow the minor to take control of the account with the parent monitoring the activity.
Open a savings account for a child and have them save coins to later deposit into the account. Have them fill out the deposit slip and count out the money on their own and walk it up to the teller to process.
Use current and every day events to introduce them to financial concepts. What is going on around you that can be turned into an opportunity to teach kids about money? Politicians discussing tax cuts or increases… a construction project at their school… paying a toll on a highway – all of these can lead to teaching moments about how money works.
How much insight into the family’s financial state should be given, and how realistic a picture should be painted for the child?
In other words, if a parent cries poor every time a kid asks for something, is that sending a wrong message about the family’s financial stability, and does it help or hinder teaching kids about money? If the right messages about finances are being sent, then the parent can talk about financial responsibility by using words that are less fear-inducing than “poor” and “broke.”
Use the child’s requests for things as teaching moments by asking a question in return. For instance, if they ask for a toy, perhaps a parent can respond with something like, “Don’t you already have one of these at home? What is the purpose of having another one? If we get this one, that takes away money that we could use for food or something really important.”
As you know, parental behavior has a huge impact on how the child views the world, so in teaching a child about sound finances, the family should practice the same. And if they aren’t, it would be a good time to start to practice what you preach. That said, even if you live paycheck to paycheck you can share the family financial picture based on common themes:
It’s the time of month to pay our bills.
It’s that time of year to do our taxes.
It’s that time of year to make that contribution to our favorite charity.
Our air conditioner broke and we have to get a new one. How much do they cost and what are some ways we could pay for it?
Have your child be in charge of one bill to pay with a check from the parent’s account. They can write out the check and have the parent sign the check. The utility or water bill is a good choice because usage has a direct effect on the size of the bill.
When it’s time to buy a car, involve children in the process by discussing putting money down, monthly payments, trade ins, interest and the consequences of not making payments.
Now more than ever, many families are feeling the stress of a strained economy. Every penny counts, and it’s important that the whole family has an understanding of the value of money. While children under five won’t be able to comprehend more advanced money concepts, there are ways to start small and introduce financial literacy for kids at a young age.
MEANING OF FINANCIAL LITERACY
‘Financial literacy’ sounds complicated – so what does it really mean? At the core, financial literacy is a set of skills that allows people to make smart decisions about their money. Being financially literate means you have an understanding of making, saving, spending (including donating), and investing money. For little ones, starting with the basics of money management might mean helping them learn how to earn money and make small decisions about how to manage it.
IMPORTANCE OF FINANCIAL LITERACY FOR KIDS
Teaching kids about money early on instill good financial habits that will follow them into adulthood. It’s important to have these types of conversations and allow children to ask questions so that eventually they can begin to contribute to their own financial success.
FINANCIAL LITERACY ACTIVITIES FOR KIDS
One key to raising finance-wise kids is experience, and they can gain experience through educational activities. Here are some activities to help your children learn about money in fun, engaging, and age-appropriate ways.
For children as young as 4 or 5, teach them the numerical value of coins (example: a nickel equals 5 and a quarter is 25). Have them hold the coins, and observe the different sizes, colors, and weights. From there, have kids engage in an activity that allows them to combine currencies to reach specific amounts (5 nickels make 1 quarter).
Ask your local bank for coin wrappers and have your child roll the family’s loose change. This is a great way to practice counting and learning how many “X” make a dollar. As a reward for helping, your child can take a percentage of the total.
Engage in dramatic play. Set up a pretend farmer’s market or pizza shop and have children practice purchasing items and working different jobs. Assign values to items and test them through play. Price a variety of things throughout your house and ask children to pay for each one in different ways (using only quarters or only dimes, for example). Teach children about “needs” vs. “wants.” Have your child create a list of things they need and a list of things they want. Younger children may enjoy cutting pictures from magazines to craft their lists. Make a game of it! Then, use practical examples to discuss the difference between the two concepts. Make lists of those very basic things they must have to survive (food, water, shelter, and clothing) versus those things they want to have (toys, candy, or video games).
KIDS’ MONEY MAKING IDEAS
Whether or not you’re a believer in giving kids money for doing household chores, there are plenty of other ways that children can earn an income for themselves.
Have children help with jobs that you or a neighbor might pay someone else to do, like feeding/walking pets, pulling weeds, or watering plants. Encourage family and friends to give your children money instead of toys for birthdays and milestones. They can keep this money in a physical piggy bank or passport savings account. Open a lemonade stand. This is a great way to teach kids about creating a budget (to get supplies), supply and demand, work ethic (sticking with the stand when there are no customers in sight) and goal setting (how will the money earned be used)? Organize a yard sale. Go through old toys with your children and decide what you might be able to sell.
Debt cabn be stressful. That’s why the vital ability to manage money is something most parents work hard to instill in their kids. Allowances, chores, and piggy banks are tried and tested techniques, but in the digital age, there are apps and online services at our disposal for imparting financial wisdom and encouraging good habits. That’s important as cash declines in use, especially during the pandemic.
It might feel instinctual to shield children from the pressures of money management, but that may be a disservice. Research in the UK from Cambridge University suggests that the money habits kids will carry into adulthood may be set by the age of 7 years old.
Starting Young A good financial life is one of the most important contributors to lifelong well-being, according to Gresham, which is why she says parents should consider a financial education to be as important as academic education.
This is a popular approach in the US, promoted by groups like Money Savvy, which even offers a physical piggybank with the same four categories.
Discussing family finances and allowing children to express their opinions on how money is spent can be beneficial, Gresham says. For money lessons to really sink in, kids must have some control and input on decisions. Family finances should be discussed openly, and kids should be allowed to choose how to spend their own money, even if that means they buy something you consider to be a waste.
This helps them to reflect and learn what is worth buying and what isn’t.
Financial Awakening For the past few months, my family has been using RoosterMoney. The app lets me set a regular allowance for my kids (aged 11 and 8), set a chore list to give them the opportunity to earn a little extra, create savings goals, and give to charity.
As well as earning, they can contribute a little to family expenses for items they really want. For example, my daughter pays toward our Disney+ subscription and my son chips in for Microsoft Game Pass.
Money is divided into different pots, and we match the money they choose to put into their savings pot to encourage them to save. All of this information is clearly laid out in an app we can all access, though parents retain control.
“We’re using technology to make it easier for parents to manage an allowance and keep on top of chores,” says RoosterMoney CEO Will Carmichael. “It helps parents keep track of how much they’ve given their teaching kids about money over time and what they’ve spent it on.”
My 11-year-old son has a debit card linked to his RoosterMoney account, which he can use when he’s out and about or for online purchases. I get alerts when he spends (debit card support is confined to the UK for now). We still handle purchases for my 8-year-old daughter, but RoosterMoney gives her a running total of what she has to spend. For very young kids, there’s an option to award stars, which can then progress into money later.
“If it’s easier to learn a new language when you’re 4 or 5 or 6 than it is when you’re 30, is that an opportunity with money?” Carmichael says, explaining his reasoning for cofounding the company.
The app has been working well for us, especially since I rarely carry cash these days. My kids like the clarity it provides, and it has undeniably provoked more discussion about family spending in our household. That said, we definitely started much later than Gresham recommends.
Whatever app or account you choose, the takeaway is to start teaching your kids about money as early as possible. You may be encouraging good habits that will last a lifetime.
You want your kid(s) to be skilled at managing their own money in the future—but how should you begin teaching them about financial responsibility?
A University of Cambridge study showed that kids from their money habit by as early as seven years old and that their observant eyeballs are usually watching when their parents make monetary transactions. With a little bit of deliberate involvement, you can give a financial education for kids head start.
tart by helping kids observe and calculate the exchange of money from an early age and by asking for their opinion when you’re getting ready to make a purchase—big or small.
Guide to Early Financial Education From introducing the concept of money to making their first investment, here’s a roadmap to guide you through the process of your kid’s financial education.
Introduce the Concept of Money Introduce young kids to coins first. Teach them the value of coins and encourage them to save their coins in a piggy bank. Use a clear piggy bank or jar so that kids can actually see their pile of money grow.
Lead by Example Explain what you’re doing when you write and deposit a check, use an ATM card, or pay for groceries. Avoid actions such as making an impulse buy, and tell the kids you’re going to wait one day instead and see if you really want to make the purchase. Kids are very observant and will learn many of their money concepts by watching you and copying your behavior.
Open a Savings Account Explain to kids how compound interest works and show them how their money grows in a savings account. Expand to a checking account once they’re ready.
Use an Allowance More than 4 in 5 Americans believe kids should receive an allowance, most commonly saying every cent should be earned and linked to chores (52%). While a quarter (27%) believe it should be partially earned and partially gifted.2 Whatever you decide, when kids receive an allowance they must learn very basic budgeting and rationing skills. As they manage their allowance money, their money management skills will improve.
Make Learning Fun Play money games that encourage learning. Board games, online games, and homemade games are all possibilities.
Allow Them to Make Mistakes Let your kids make their own spending decisions, even if it means making mistakes and wasting their money. It’s a valuable teaching tool. However, be ready to step in and help guide them when they need it.
Let Them Earn Money Working summer jobs, becoming lemonade-stand entrepreneurs, or working for mom and dad will all help kids learn about business and hard work. If you pay an allowance, call the money a commission instead, and allow kids to earn various commissions for different household chores.
Create a Budget Together Allow your kids to plan for a family event to practice their budgeting skills. Help them also understand the opportunity cost of spending money on one thing, which may keep them from having enough money for other things.
Teach Your Teen About Credit Help your teenager understand the concept of delayed gratification and the pros and cons of buying on credit.
Introduce Taxes Kids will often be surprised by the withholding on their first paycheck. Explain the concept of taxes early on and their paycheck will meet their expectations.
Encourage Charitable Giving As Mary Gordon writes in her paper, The Roots of Empathy, “Teaching children emotional literacy and developing their capacity to take the perspective of others are key steps towards collaboration and civility; they are indispensable steps towards preventing aggressive and bullying behaviors.”3 If you introduce compassion and philanthropy to your kids early, they will likely become eager volunteers and kind people as they grow.
Introduce Long-Term Planning Teach your kids about long-term savings and debt. Discuss the costs of college, cars, houses, and retirement early to give them a head start.
Teach About Investing Once they’ve mastered basic banking skills, encourage your kids to learn about the complexity of globalized markets. Explore the idea of stocks, mutual funds, or savings accounts.
Teach Kids to Set Goals Many successful financial milestones are achieved by goal-setting. Encourage your kids to set savings goals and work towards them.
Tim Connolly 