How to teach kids about money

Quick insights

• Considering your child’s education level and life stage can help you decide how to introduce financial topics at a rate that’s appropriate and engaging.
• Saving, budgeting and shopping are important topics to cover earlier on, with increasing complexity as your child ages.
• Older teens can be introduced to the credit system and learn how to use credit responsibly.

Early financial education can help prepare a child to make good decisions with money as they grow into adults. But how do you teach kids about money? The answer can be a little complex. After all, certain aspects of financial education are more advanced than others, children learn at different rates and family values can vary.

In this article, we will provide starting suggestions to help you develop your approach to financial education with your child. How you teach them about money management is ultimately up to you, so pursue topics as they seem relevant and useful for your family.

Considering age-appropriateness

To get an idea of how kids learn about finances, consider each life stage:

• For young children (ages 5-8): This age group is only just beginning to learn basic mathematics, so it may be important to represent concepts in a visual way. Keep to the absolute basics, with more emphasis on coins and cash.
• Pre-teens (ages 9-12): With greater mathematical knowledge and some life experience, this group is primed to set their first savings goal, learn about household budgeting and begin comparison shopping. If allowance is part of your home’s customs, managing this “income” can provide an opportunity for spending and savings practice.
• Teenagers (ages 13-18): Many people begin earning money with their first part-time job at this stage, so honing money management skills becomes more practical and less theoretical. As your child approaches adulthood, long-term planning, consumer awareness, understanding debt and building credit become relevant topics.

Introduction to currency

One of the first things you can show a young child is how to identify bills and coins. Gathering common denominations and showing your child how they relate to one another can be a good first step. For example, laying out 100 pennies, four quarters and a one-dollar bill to illustrate their common value. Depending on your child's mathematics level, you can then ask them to gather a specific amount of money from the collection.

Making choices as a shopper

Inviting your child to make spending decisions about different items can help introduce the concept of trade-offs. This could begin as simply as allowing the child to choose from loaves of bread at the grocery store and discussing their reasoning. For a challenge with more variables, you could provide a budget to choose ingredients for homemade sandwiches.

When allowances or part-time jobs enter the picture, spending becomes an increasing part of life. This presents opportunities to help them decipher daily marketing messages and navigate peer pressures. One day, when the child is ready to make their first major purchase (such as a laptop or car), walking through the considerations together can help them hone their smart shopping and comparative skills.

Allowance and earning

Many parents provide their children with an allowance for daily expenses and savings before they get their first job. There’s more than one way to calculate allowance: Many parents choose to offer a base allowance, with extra earned through chores, grades or other projects. If you’d like, assigning a cash value for tasks and achievements may help your child begin to associate money with work. This can help them form a realistic appreciation for the dollars they earn and then choose to save or spend.

Introducing saving

It’s classic for a reason: a piggy bank to collect allowance and birthday money can help teach a child the importance of saving. Filling the bank gradually, breaking it and counting the money saved can help introduce a life-long habit. Setting a specific goal with your child may help them feel more engaged, such as planning for a big toy or another reward.

How to teach kids about budgeting

Building on the piggy bank concept, you can set up individual jars for both savings and spending money, teaching budgeting in a simple way. You can also make the designations more specific to your child’s interests or things coming up, such as “ice cream money” or “school supplies.” This money could come from their allowance directly or could simply serve as a method for visualizing household funds that affect them. As your child ages, you can help them set up a checking and savings account to continue learning about budgeting in a more realistic way.

Opening a first bank account

Getting familiar with how the banking system works is a major aspect of financial education. Opening a child-specific account, teen-specific account or sharing a joint account can offer good exposure to the banking system with the safety of parental oversight. Going through the processes of making deposits, withdrawing cash and reviewing account activity can provide a foundation for future financial responsibilities. These skills become especially important when a child reaches the age where part-time work and a regular paycheck is a possibility.

Advanced budgeting and financial responsibility

When your child reaches a certain age, they may be ready for a more detailed look into household finances. Showing them how much your family pays for utilities, car payments and housing costs can help teach budgeting in a practical way. You can also make a point to show your child the format of certain bills and the payment method you’ll use. The efforts you make to demystify everyday financial tasks can help them feel confident as they grow into adults with their own responsibilities.

Credit and debt basics

Many adults struggle with debt, so it’s important to find opportunities to talk with older teens about the credit system and loans. If you have a credit card, you may want to consider adding your child to the card as an authorized user. Many credit card issuers allow kids under the age of 18 to become authorized users of a parent-sponsored card. Sharing a card in this way can help them learn about responsible credit use and build their own credit with parent oversight.

The same group may also be gearing up for college or considering taking on student loans. Financial planning for higher education can provide an opportunity to discuss how to responsibly use credit, interest rates and the importance of dissecting fine print. Working with them to build their vocabulary and skills can benefit them as adults when they need to navigate other credit and loan opportunities.

In conclusion

Financial education is a life-long process, and beginning with building blocks from a young age can give your child a head-start toward financial independence. When crafting an approach that works for your family, it's helpful to consider what’s happening in your child’s life (including their overall educational level) to keep the focus relevant to them. With a careful forward-thinking approach, your efforts can help your child grow into a financially capable adult.