How to Teach Children about Money
Age Appropriate Ways to Help Kids Understand Family Finances
Oct 27, 2009
When talking to kids about money, parents should try to be intentional and informative in the messages they send. In other words, messages to children should be pre-planned whenever possible, and agreed-upon between parents, rather than expressed in the heat of a frustrating moment.
Parents should also aim to use financial challenges as opportunities to teach kids basic lessons about money. It is critical, however, that parents not place the emotional burden of financial problems on their children, who are not developmentally able to handle it.
Children, Money and Role Models
The first step to teaching children healthy financial habits is for the parents themselves to model a healthy attitude about money. This means being honest and realistic when communicating about money within the family, and developing good habits like budgeting, realistic spending and living within the family's means.
If parents feel uncomfortable discussing money themselves, or do not have their own spending habits under control, it will be difficult to teach children healthy money habits. With good communication and effort, parents can improve their own financial outlook while modeling good money habits for their kids.
One way to be teach children money lessons through role modeling is to talk openly about the process of budgeting the family's money, or even include children on money decisions using a family budget meeting. If children see their parents spending carefully, saving regularly, and setting aside money for charity, they are likely to follow suit themselves.
Age Appropriate Money Lessons
Many parents wonder how soon they should start teaching kids about money, and the answer is as early as possible. Even the youngest children can learn the basics about money and how it works; these lessons build over a lifetime to create attitudes and habits.
When children are babies and toddlers, they are just beginning to explore the concept of money, and even the look and feel of currency. At these ages, parents will want to simply expose kids to money by allowing them to watch or help pay at cash registers, and by playing with money-themed toys such as soft piggy banks.
At ages three to five, children become more engaged in the concept of what money means: specifically, that it can be traded for other things. Children this age will enjoy playing "store" or other money-themed games.
Kids in this age group are also able to practice putting some of their own money in savings with a real piggy bank, and to set aside coins to give to the family's favorite charities. They can also begin learning about the limits of money by making choices between items at the store, or activities.
As children grow, they begin to acquire math skills that play a large role in money management, as well as an improved ability to grasp the abstract concepts behind the coins and bills. Parents can use the math skills kids acquire at school to help them practice managing their own money. Here are a few simple math exercises for kids whose skills are growing:
- Counting coins and bills
- Comparing the value of different coins
- Adding up the amount in the piggy bank
- Practicing addition and subtraction while shopping
- Using percentages to divide up the child's allowance into fun money, savings for specific items, long-term savings, and charitable donations.
By the time kids are teenagers, they have often mastered the art of managing their own money, and some teens get jobs to earn spending money or to save toward a certain goal. At this age, parents can provide encouragement and accountability by helping kids to open a bank account and showing interest in how much they've earned, spent and saved.
Keep in mind that teenagers need some independence in order to practice their money management skills, so parents should aim to be helpful but not micromanage. It may be useful to set rules and expectations around teens' money, and to allow freedom of choice within those rules.
Teenagers will also benefit from the money lessons of adulthood, such as investing methods, taxes, and areas of the family budget. It can be useful to both kids and parents when adolescents and teenagers understand how the family money is spent each month, and how much is required to keep the family afloat.
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