Important money lessons and milestones you can use to teach kids finance.
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 lessons for children early. But you can start small. 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:
- One little piggy is for saving
- The second is for spending
- 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, money habits are often set by age 7.
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.
Financial literacy is the gift that keeps on giving!
No one ever says it’s easy raising another person from infancy to adulthood, but it’s a job that must be taken seriously. The importance of teaching kids about money is paramount to making sure they can survive on their own once they are out in the world. These training tips should help to guide you along the way to ensure your child understands not only the value of money but the importance of managing it properly to be successful.
Just remember, giving in to your children’s demands for things without ever making them work for them or earn does them a disservice. If you teach them important lessons, such as the value of earning your money and saving to buy what you want, you set them up for succcess in the future.
Article last modified on April 21, 2023. Published by Debt.com, LLC