Lots of wise folks assume kids are “too young to understand” when it comes to money and personal finance. I disagree. In fact, I think it’s critically important to teach your children about money at a young age and slowly introduce concepts so that your children grow up to be financially literate. This is especially important in the world we live in today. Kids are graduating from high school without understanding enough about how to manage their personal finances, and they are entering a world full of consumer traps and mine fields. Here are some simple ideas for teaching your children about money.
Ideas for little kids
Start the conversation. As soon as your child understands the concept of buying and purchasing the things we need, you can begin to instill the idea that it requires money to do so. A good jumping off point is when they begin to ask you to buy them things at stores. No dissertation is needed here. Just start having the conversation about how mommy or daddy earn money by working to pay for the things we need. Paying with cash is helpful here, as they can actually see the transaction, an important image to plant in their brains.
Show them the money. Play with money! Show your kids physical coins and paper currency and talk about the value of each coin or bill. Play store or bank with them so they can practice remembering that a nickel is worth five pennies. This can begin at a very young age.
Let them pay. Start this by handing your child the money to give to the cashier and receive the change back. This exercise has the added benefit of helping them gain confidence in talking to strangers and practicing saying thank you. (Ninja!)
Dispel the myth that the ATM is magical. Along with your early conversations, explain how ATM machines work. If your child is with you frequently when you use one, take the opportunity to explain the role of the bank as an institution that keeps the family’s money safe. The ATM is nothing more than a convenient way to take money out of our own accounts when we need it.
Differentiate wants versus needs. Start this conversation as early as you can. As opportunities arise, make examples about the difference. Emphasize the importance of having money first for the things we need, versus the things we might just want.
Ideas for elementary-aged kids
Let them pay, revisited. As children get a bit older, let them buy things for themselves using money you give them. When they are capable of counting, ask them to count out the appropriate amount to give the cashier.
Give an allowance. This is a topic discussed in more detail here, but however you choose to administer an age-appropriate allowance, spell out what they are responsible for buying with their money. One of the most awesome parental moments ever for me was the first time my daughter Rowan asked for some silly thing at a store, and I said, “Sure, but you have to pay for it with your own money.” She quickly concluded she really didn’t want the item any longer. Score!
Share, but be careful. By the time your child is elementary school age, you should have a sense for whether he or she will indiscriminately share information about your family. So, while it’s important to be cautious, I encourage you to be as open as you can with your children about your family’s finances. Often, we tend to err on the side of not talking about money to our kids, perhaps out of embarrassment for a current financial situation. However, if you are honest with your children, they will have a better understanding and response when you tell them why you cannot afford a certain thing they desire. Trust your kids.
Emphasize that saving is important. Find specific examples in your family’s life where you are saving for a particular goal. Explain why the goal is important, rather than just resorting to the old saw that we are “saving for a rainy day.”
Encourage entrepreneurism. Kids frequently cook up ideas for little businesses. Whether it is the classic lemonade stand or peddling things they craft, kids like the idea of earning money. Play along. Offer constructive feedback, but don’t squash their dreams. More than once, I have had to have delicate conversations with my daughter about people wanting to buy things they find value in, and not necessarily the things SHE finds valuable. Instead, I encourage her to put her best efforts into her business idea or product before deciding to offer things for sale.
These simple ideas about teaching your children about money are intended to get your creative juices flowing. It isn’t difficult, really. No need for a week full of lectures or a textbook! All it takes is a bit of awareness to take advantage of the learning opportunities that pop up in day to day life. Once you get in the habit of spotting opportunities, it will get easier and easier. Little one-minute lessons, regardless of how informal, will add up over time. Before you know it, you’ll have a money-savvy little beast in your home.
Don’t say I didn’t warn you.
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*This is an update on a post previously published in February, 2018.