Tim Connolly

Money is an essential part of life, and it’s never too early to teach your children its value and the importance of saving, so they will be equipped to spend sensibly when they grow up. Learning the principles of responsible handling of money should give them many opportunities for advancement when they are older, which is why it is essential that, even at a young age, children cultivate respect for money.

1. Expand on the basics of math

Once your children start school and learn the basics of math, begin to educate them about money and provide some practice. Play money games at home, or download them to your computer and/or tablet. This way, your child will learn how cash is actually used.

2. Get your child a piggy bank

This simple action will teach your children the importance of saving and engender a sense of responsibility towards handling money. Encourage your children to collect a certain amount in a particular time frame, or suggest they save coins of a specific denomination. Make it a game as well as an aim, to keep it interesting. On your chosen date, open the piggy banks and count the savings. Make a visual record, to encourage your children to save more, and teach them the basics of simple record keeping.

3. Familiarize your kids with the bank

Take your children to the bank and open savings accounts in their names. Let them talk to the teller and conduct their business themselves. Make sure they understand the terms and conditions and suggest they commit to depositing regular amounts on a weekly or monthly basis. For more convenient banking, accounts are often accessible online. Having their own bank account will give your children a feeling of achievement which could motivate them to save more.

4. Encourage your children to plan how to spend their savings

Planning for future spending motivates your kids to achieve their savings goals. It reminds them that with enough money, they can buy whatever they want. Allow them to dream big, and encourage them to save more, so they can achieve their goals more quickly.

5. Let your kids do their own shopping

Give your children their allowances when you go shopping. You can then observe their attitudes towards spending money. If your kids want to spend more than their allowance, advise them to be more frugal and more patient. Educate them on sensible spending and explain the priorities when shopping. Also, remind them that at the end of the day, the most important thing is that they can buy what they want because they were able to save money.

6. Pay in cash

Credit cards are a great temptation to spend money you don’t have, then pay more for the privilege later. Show your kids that the best way to buy things is with the money in their pockets. Keep it real at all times – handing over cash is the best way to learn how to use money responsibly.

The best way to teach money management to children and the importance of saving is to lead by example, and allow them some responsibility. Give your children an allowance for the things they might want to buy, and encourage them to save in various ways. Familiarize them with simple record keeping and the way savings accounts work, and leave the credit cards at home when you shop with the kids. These simple but effective measures will help your kids to learn how to handle money responsibly, and equip them for adult life.

Here are eight takeaways for parents and children.

1. The societal shift from coins and currency to virtual money calls for increased ways to manage it better.

Money has become invisible. It’s not like a bunch of stash in our pockets or purses, or change, you know, like quarters, nickels, dimes. It’s just numbers on the screen that represent money. And a lot of parents are struggling to teach kids about money

If you teach kids money management for a decade, they will learn the correlation between earning money and managing it for spending, saving, investing and sharing with charities.

2. Teaching children to save, spend and share can build a lifetime habit of managing money well.

We believe if you teach kids for a decade they can develop a habit. Kids will be able to make much better decisions about money. They will understand the exact correlation between earning money and then managing it.

3. It takes responsibility to manage money, and it’s good to learn that sooner than later.

If they want to buy something, I would ask if they have money in their particular account. This way they have a sense of responsibility for not only having their contribution but they also have a newfound sense of awareness about what things cost.

4. Home is where children can best learn how to handle money because the subject rarely is taught in K-12 schools.

At very few places are personal finances taught at school. The school teacher will never give some student money. The home is a source of money for kids, and that is where they should be taught. Some would say, ‘I would not pay my kids to do things around the house because they are part of the family.’ And I agree with that, but at the end of the day they need money to make decisions, and where are they going to get money if not from (their parents)?

5. Investing in the stock market now can teach children how to comfortably handle risk.

The market is horrible right now. You can say there is a lot of risk involved in this. It’s actually a good lesson to learn for $40 instead of $400,000. This is a great teaching opportunity, the perfect time for kids to experiment with this.

6. Giving to charity is an important life skill that pays off with community support.

Learning what charities are and how they operate (can) open their eyes to helping others through charity and what cause they want to support. It is so powerful.

7. Children who learn financial management now can change their generation’s relationship with money.

 It empowers your kids to learn, not only how to earn money but how to manage that money in a balanced way. It empowers your kids to learn a skill that will help them make financial decisions moving forward with their lives. The last thing I want to say is that kids have been pretty much ignorant of money, such as credit cards, student debt and even the national debt. With this, the next generation will learn how to live smarter and with less debt.

8. Parents should make sure money-management and other child-focused apps have security protocols in place.

 I think with anything on the internet there is some degree of risk. However, I am comfortable with the platform as it has been built.

The way adults behave with money often stems from how they were taught to handle finances as a child. If their parents constantly spent money they didn’t have and were continually in financial trouble, the children wound up with similar bad money habits, according to a T. Rowe Price Study. This is especially true if parents never teach their children financial responsibility in at least some capacity. That’s why teaching kids about money should begin at an early age. It’s important to show children, even as young as 2 years old, that things cost money and there is a value in the things you buy.

The latter is especially important in an age where “toys” can be considered tablets and smartphones that cost much more than a $2 trinket. It’s vital for a child to understand that even experiences can cost something; otherwise, as they get older, they will feel entitled to these experiences and goods. The older a child gets, the harder it will be to change their mindset if they haven’t been taught it in the past.

Financial Literacy for Kids

It’s important to start money management for children early. You don’t have to go straight to addition and subtraction, or even costs. Below we’ll highlight several topics to teach your children at certain ages. This is not to say that you can’t go beyond the scope. Just keep in mind that some concepts can’t and won’t be grasped if you try to teach them too young.

Step 1: Introduce your kids to basic money concepts at 2-5 Years Old

Now is the best time to impart the basics, like the concept of money. It can start small by teaching children the value of things and experiences. When you go to the store or a restaurant, take them and have them pay for it using your cash or credit card. This shows them that there is an exchange of “money” for goods or services. (Children at this age don’t understand the concept of a credit card or debit card, so when teaching lessons, it can help to have some cash on hand.)

When it comes to experiences, explain to them that the trip to Disney or the plane ride costs money and that it is expensive to travel to new places. It’s also a good idea to begin imparting the idea of charity and those with less. Explain that when they get something special or something of value, that they are lucky to have gotten it because there are others out there who don’t have the access to good food or vacations like they might.

Once your child is beyond the stage of putting things in their mouth, around age 3, you can start introducing actual coins and dollar bills. Play money is good for this, too. Again, start small. They don’t understand the difference between the value of a penny and a quarter, just that it is all “money.”

The 3-piggy banking system for kids

Age 3 is also a great time to introduce a piggy bank. Some parents break it down even further and set up a three-piggy bank system:

1. One little piggy is for saving
2. The second is for spending
3. And the last one is for charity.

This can be altered and set up for just saving and charitable giving as well. Begin the concept of the piggy bank by offering them change for a chore they did well or the change from a trip to the grocery store if they were well-behaved. Have them count the number of coins and separate them by the way they look. This will be helpful when teaching them the different values of the coins.

Around age 5 you can begin to teach them about the individual coins and what they are worth. Make sure that each lesson is fun and not made to be overly complicated or daunting. This could lead to negative feelings about money and potentially poor money habits in the future.

Step 2: Start teaching kids how to manage money at 6-10 years old

This is where the real lessons on how to manage money come into play. According to an article by Beth Koblinger, a personal finance expert for young people

If you haven’t yet, take your child to a local bank branch and open a checking or savings account for them. Many banks and credit unions offer accounts with no fees for young children. Unfortunately, most banks no longer offer coin counting machines that children can use to add up their piggy bank savings. You can work with them at home counting out change to fill up coin wrappers and bring those into the bank. Or you can check in your local area, since some grocery stores or other local establishments may have coin counters.

This is also the time to do some research on allowances and working that into the mix. Set either a single weekly amount or separate amounts for individual chores that are distributed at the end of the week. Explain to your child that just as in adulthood, work equals pay. If they don’t do their at-home “jobs,” they cannot get paid.

If they want to buy something at the store, explain to them they can use some of what they’ve saved (or some of what is in their “spend” piggy bank) to buy the item in question. Not having enough is a very important lesson in teaching financing to kids. It reinforces the idea that things have value and that you must save sometimes to get the things you want. But if they want the item and the allowance won’t cut it, it might be time to teach your kid ways to make money outside of allowance.

How to Make Money as a Kid

One lesson that you can start around age 6-10 is the concept of work, outside of chores, to make money. This lesson can extend well into high school and beyond. Ways to make money for kids vary from lemonade stands, helping neighbors clean their gutters or cars and even selling items like toys and books they may no longer want or need.

Years ago, there was a computer game that helped understand the concept of money with a lemonade stand. It helped children understand the cost of each item (lemons, sugar, ice, cups) and how much to charge based on the amount of ingredients you used and the weather. Similar apps exist today, but don’t offer the real-life lesson of getting out there to earn some real extra money.

Cash is king at this age because it is something tangible that can exemplify the exchange of money for goods. It can also reinforce basic math skills of addition and subtraction, by making sure you pay with the correct amount and that you receive correct change. This can be hard in this day and age because so many things are paid for with debit and credit cards, as well as online. Balancing a checkbook and other financial techniques are antiquated measures. But it might be prudent to start teaching your child the basics of a simple accounting spreadsheet or budget so that they can begin to grasp financial concepts more firmly.

Step 3: Reinforce health money habits at ages 11-14

This is really the age to start reinforcing the money habits you taught your children earlier on. Make sure chores are done and allowances are earned. Have them start using their money to buy the things they want instead of you making these purchases. This is one of the critical points of finance for kids, making sure they understand that the things they want cost something.

Expand on the idea of earning money outside the home with babysitting, washing neighbors’ cars or cleaning their yards, etc. Making more money is a perfect opportunity to discuss again the idea of saving, spending and helping others through charitable giving.

It’s also important at this time to talk about and explore potential volunteering opportunities for your children. Allow them to experience a world outside their walls and show them the importance of giving back to those less fortunate.

Step 4: Start introducing financing, credit and income earning at age 15-18

Will your child drive or do you live in a city that has options other than cars for transportation? It makes things easier if you live in a place like New York City where there are myriad forms of public transportation for your kids to get around.

Children often think of getting a car when they turn 16 or 17, but most families can’t afford that kind of expense. However, if your child has saved up, there might be some opportunity to get some kind of reliable used car. You can potentially consider offering to split the cost or pay for insurance.

Before you get a car for your child, make sure they understand the costs involved. There’s the initial purchase of the car, sure, but there’s also insurance, the tag/registration, gas, oil changes and other scheduled maintenance, roadside assistance and more. Make a list for your kid and sit down with them to go over the costs of car ownership.

Once they see the costs involved, it might be time to get a part-time job at a local store or restaurant. This comes with its own set of issues though. Many articles are quick to point out that as school has become more rigorous and in some cases extended into summer; children don’t have time to work for extra cash. Some establishments also look for more qualified workers as a result of minimum wage hikes, leaving high schoolers high and dry.

Make sure to talk to your children about the balance of school and work and free time. Each of these offers its own rewards when it comes to learning about the real world and teach kids finance in a different way.

Step 5: Start talking early about how to afford college

Age 15-18 is also the time to discuss college or what your child plans on doing after high school. If your child isn’t necessarily the college type, it may be worth looking into trade schools for a career outside what a bachelor’s degree can offer. There are plenty of lucrative career paths including plumbing, being an electrician and even specialty areas, such as welding.

If your child does plan on going to college, look at the options and discuss costs. Private and out-of-state colleges are much more expensive than in-state public institutions. Look at scholarships, grants and other options to help defray costs. It’s also a great time to discuss student loans and how they can impact your life after college.

Make sure to include heavy costs areas, such as housing and food, in your child’s college budget as well. Allowing your child to be a part of this discussion will help them make a smart decision that can affect the rest of their lives.

Teaching kids about money can shape you kids future attitudes toward money. So if you’re looking to set your kids up for financial success later in life, here are 7 strategies to consider:

1. Demonstrate the Value of Money

It’s that familiar writer’s rule – show, don’t tell. Because visuals can be a helpful learning tool, some experts suggest that young children use a glass jar instead of a piggy bank, so they can see the money they collect. However, there are other visual teaching tricks you may want to employ.

Michael Tanney, director of the Magnus Financial Group, a financial advisory firm in New York City, suggests showing a child a bucket and putting it in a sink and then filling it up. “The water represents money. Turning the sink handles represents the job, and the bucket represents the bank,” he says, explaining that if you spill all the water out of a bucket (or spend all your money, using the metaphor) and have none left, you must go back to the sink and work to earn more water (or money). “A bank account doesn’t operate much differently,” he says.[ 

2. Talk to Your Kids About Money

Even at a young age, kids should understand how you’re getting the services and products you’re receiving.

Stefanie Lewis, regional wealth planning manager for Wells Fargo Private Bank in Fort Lauderdale, Florida, points out that children see their parents paying for things in a variety of ways, and it isn’t always obvious to them what’s going on. “They see us use plastic cards to pay for some things, and coins and green paper for others. We buy lattes with our phones. We pay for gas through some invisible encounter between our wallet and the pump,” Lewis says. “How do we expect our kids to understand money in the year (2020)?”

The bottom line: Unless you explain to them how you’re paying, kids won’t understand how much items and services cost.

3. Talk About Money When or After You Watch TV Shows

If you’re binge watching a lot with your kids, you may have noticed that there are a lot of money lessons that you can painlessly teach your children by discussing the financial choices that TV characters make. For instance, people often comment on how unlikely it would be that the young adult characters on “Friends” could have afforded the roomy apartments they lived in.

You may risk ruining some of the enjoyment of watching your favorite shows, but depending what financial choices your favorite TV characters are making, you could turn an episode into a teaching moment.

4. Pull Out the Board Games

Monopoly and The Game of Life aren’t just fun, family-friendly activities – you do get a sense of how the world and money works when you play them.

And if you or your kid end a game like Monopoly broke and in jail, at least no permanent harm will have been done.

5. Let Your Kids Shop

So your 12-year-old wants a video game, and you’ve agreed, and you’re going to buy it online. Well, not so fast. If your child hasn’t ever made an online purchase, this would be a good time to let him or her make the purchase.

With you watching, of course, and you may end up explaining little things, like why there’s a three-digit security code on the back of your credit or debit card. It’s a micro-lesson, to be sure, but the more chances your kid has to shop and experience money before he or she is on their own as a teenager or young adult consumer, the more likely your child will be a smarter shopper.

6. Stress the Importance of Curbing Impulse Purchases

If your child receives an allowance and spends their money on toys, books, candy and so on, there’s an easy way to instruct kids on how to prevent buyer’s remorse.

“When children begin spending their own money on toys or gadgets at stores like Target, we encourage Mom or Dad to save the receipts from those purchases,” says Mike Earl, a financial planner at The Wealth Group in Minneapolis. Then, two weeks later, pull out the receipts and review the purchases together.

“The question for the child is: How much joy is he or she currently deriving from that item? Was it a worthwhile purchase? The idea here is to help children grow in mindfulness about their spending decisions,” Earl says.[ 

7. Start a Coin Collection

It used to be easier to get children interested in coins. You’d find some coins in your change dating back from thirty years ago – and you’d talk about that, and your kid might start collecting certain nickels or pennies.

Now, you’re probably using your debit card. Still, if you want to put in the effort of helping your kid collect coins, it can be a nice visual way to teach your child about money, how old coins end up becoming valuable over time and history. The United States Mint has a website that may be able to give you ideas for getting a child started.