How to help your children understand money matters…
Teaching children the finer points about money and finances may seem daunting, and you may wonder how you should start. Yet, teaching kids about money and how it works is incredibly important – especially in the current financial climate.
As Forbes magazine points out, the US’s $845 billion in credit card debt shows that even adults need to learn more about the essentials of money.
By teaching kids about the importance of saving money while they are young, they can avoid some of their elders’ mistakes.
Why Teach Kids Financial Management?
It is important to teach kids financial management while they are young so they will have a good foundation of financial skills that can be built upon as they get older.
For example, while a teenager will need to start thinking about getting a job, saving up for college, and learning to manage expenses, younger children just need to learn about:
- The importance of money
- How to use money
- How to save money
Although the concepts that a younger child should learn may seem simple, they will need them to be able to expand them later as a teenager.
What Do I Teach Kids About Financial Management?
Kids don’t need to make a life plan or get a job quite yet. Therefore, it is good to start with simple money-related concepts when teaching kids financial management. This will help them when they do need to make significant financial decisions later on.
The Basics of Money
-
- If you have younger children, teach them what money is and why it is used as an exchange for goods and services.
- If your kids are older, help them understand the value of money and how it applies to their everyday lives.
Spending Wisely
-
- With younger children, you can easily explain the difference between wants and needs to help kids prioritize spending. For instance, start with food versus candy.
- As your children get a little older, you can teach them the concept of value versus cost to recognize what makes a purchase worthwhile. A good example is a single can of soda versus a 6-pack of cola – once is cheaper but last for one meal while the other is more expensive but lasts much longer.
Saving for the Future
-
- Although this lessen is easier for older kids, introducing the importance of saving money rather than spending it all at once is a great lesson. Use relatable examples, like saving your money for a special toy or videogame, to show the benefits of delayed gratification.
Banking Basics
-
- When younger kids receive birthday or holiday money, it’s a good idea to introduce them to the safety and security of a bank account. Take them to open a savings account and encourage regular deposits to build a saving habit. Most banks even have programs designed for children that have limited or no fees.
- With older children, you can teach them how to read bank statements and track interest earnings to understand how savings grow over time.
Building Lifelong Habits
-
- With children of all ages, reinforcing the idea that managing money wisely now leads to financial independence and success in adulthood.
By focusing on these steps, you provide kids with a strong foundation for managing their finances effectively throughout their lives.
How Do I Begin Teaching Kids Financial Management?
As we discussed in the previous sections, your child’s age is a good indicator of what and how you should teach them about money. In this section, we give parents and guardians great tips on teaching kids financial management.
For Younger Kids (Ages 4–9)
Introduce the Basics of Money
- Start teaching kids about money as soon as they can count: Use a jar of coins to teach them the value of different denominations and how to count money. For example, ask, “How many quarters make a dollar?”
- Use coins and bills to help them practice addition and subtraction: Create a pretend store at home where they can “buy” toys or snacks using play money, practicing giving the correct amount and counting change.
- Show them how to pay for small items, like snacks, to experience handling money firsthand: Let them hand over money to a cashier at the store for a small candy bar or a drink, helping them understand real-world transactions.
Use Everyday Scenarios for Learning
- Involve them in grocery shopping by having them estimate the total cost of items: For example, ask, “If apples cost $2.50 and bananas cost $1.20, how much will they cost together?”
- Encourage them to think about simple transactions, like saving for a toy or a treat, to understand spending and saving: Set up a piggy bank and create a visual goal chart. For example, show that saving $1 each day means they’ll have enough for a $10 toy in ten days.
Focus on Simple Lessons
- Highlight the difference between spending money now and saving for something bigger later: Use an example like saving up for a $20 toy instead of buying multiple small candies.
- Keep financial concepts straightforward and relatable to their daily experiences: Use examples like saving for a birthday gift or understanding why parents budget for family outings.
For Older Kids (Ages 10 and Up)
Explore Advanced Financial Concepts
- Introduce topics like interest, savings accounts, and percentages: Show them how $100 in a savings account with 5% annual interest grows to $105 after one year.
- Explain where interest comes from and why different types of savings accounts exist: Compare a regular savings account to a certificate of deposit (CD), explaining that banks pay interest in exchange for holding money.
Teach Investment Basics
- Discuss the concept of investments and how money can grow over time: Use an example like buying a $10 lemonade stand kit that generates $50 in sales. Explain how their initial investment leads to profit.
- Explain the stock market in simple terms and relate it to everyday examples: Say, “Buying a share of a company is like owning a tiny piece of it. If the company does well, your share becomes more valuable, just like your allowance can grow if you do extra chores.”
Encourage Entrepreneurial Thinking
- Help them explore ways to make money, such as starting a lemonade stand or offering services like lawn-mowing: Suggest simple projects like selling handmade bracelets or pet-sitting for neighbors.
- Teach them to view money as a tool for building opportunities, not just for one-time purchases: For instance, explain how saving earnings from chores or small jobs can fund a larger goal, like buying a bike or saving for a special camp.
What Are Some Great Tools to Help Teach Kids About Money?
Who says teaching kids financial management has to be boring? With the right games and tools, learning about money can feel like an adventure! From apps and online games to classic board games, there are tons of fun ways to help kids master financial skills without them even realizing they’re learning.
For Younger Kids (Ages 4–9)
Free Games and Apps:
- Money Magic: This game helps kids learn about budgeting and saving while managing a magician’s shows. Players balance expenses for advertising, maintenance, and other needs while saving up for a big goal.
- Peter Pig’s Money Counter: A free online game by Visa that teaches kids how to recognize and count coins. It also introduces the concept of saving money through simple and engaging challenges.
Classic Board Games:
- Monopoly Junior: A simplified version of Monopoly, this board game teaches kids about basic financial transactions, like buying properties and managing money. For example, they’ll learn to budget their cash to buy fun properties like an ice cream stand or a zoo.
For Older Kids (Ages 10 and Up)
Free Online Games and Apps:
- The Great Piggy Bank Adventure: This free online game teaches kids about budgeting, saving, and achieving financial goals. For instance, they help a piggy bank save enough to reach specific objectives, like buying a dream item.
- Financial Football: A free interactive game by Visa that combines football strategy with financial questions, teaching concepts like budgeting, saving, and managing debt.
Classic Board Games with Financial Lessons:
- The Game of Life: This board game simulates real-life financial decisions, from attending college to paying off loans and retiring. For example, players must choose between career paths and decide whether to buy insurance or save money.
- Payday: A family-friendly game that teaches kids about managing monthly expenses, earning income, and paying bills. It’s a fun way to learn budgeting and the importance of saving.
Using these games, both digital and traditional, makes financial education entertaining and interactive, giving kids practical knowledge they can apply to real-life situations.
Looking for a way to help your child succeed in school and beyond? School is Easy offers personalized tutoring designed to support your child’s growth and confidence. Click here to connect with a tutor near you!
