Teaching your kids about money is one of the most important (and most overlooked) things you can do as a parent to prepare them for adulthood.
We personally have a 1 and a 3 year old, and while they are still a little young to pick up too many financial concepts, I know there are some things we should be doing to teach our kids about money.
That is why I was excited when Nelly, our guest author today, reached out to me with a guide for how to teach kids about money at every age – starting as early as 2 years old and into adulthood. If you want to check out her other work, she writes over at her blog, My Way of Viewing.
Simple Tips to Teach Kids About Money
Before we get to the guest article, I wanted to share a few simple tips to teach kids about money.
I know for me it can be an overwhelming topic, and I’m never sure if I’m doing the right things. Hopefully these tips will get you going in the right direction no matter your child’s age.
1. Your Kids Pay Attention to How You Handle Money
My daughter loves going to the “pizza store”, as she calls it. One day when we were there, she asked if she could give the cashier the “monies” for the pizza.
Without ever having had a conscious conversation about money with her, she had picked up that pizza wasn’t free, and we had to pay something in exchange for it. It’s amazing what your kids pay attention to and learn from you.
Which is a good reminder that one of the best ways to instill good money management habits in your kids is to have your own personal finances in order. One study suggests that kids’ money habits are formed as early as age 7.
2. Teach Your Kids the Power of Saving and Delayed Gratification
Compound interest is a bit of a tough concept for a toddler, but even young kids can learn the concept of saving money for something they want.
My daughter LOVES Target, and sees one or two or fifty things she NEEDS there every time she goes. We are working on teaching her that things cost a certain amount of money, and we can’t always afford everything we want.
I’ve met full grown adults who don’t have any concept for saving or delayed gratification, and the earlier you can teach this lesson to your kids, the better chance they will have to apply this in every area of their life, not just in personal finances.
3. Teach Your Kids Age-Appropriate Lessons About Money Management
While we live in a cashless society, if your kids are just starting to learn how to count, playing store with a credit card is probably not the best way to go about teaching them the value of money. You need to start with cash, counting out bills and coins to show the relative price of various goods.
Similarly, if your child is about to go off to college and you haven’t had “the talk” (you know, the one about credit card interest and student loan debt – what did you think I was talking about?), you should make sure you are covering these topics BEFORE they are faced with them in real life.
4. Let Them Earn Money, Make Decisions, and Make Mistakes
Not everything can be taught in a classroom setting. Sometimes you have to let your kids get their hands dirty and learn on their own.
It’s much better to let them earn money (through chores, or simple jobs around the neighborhood) and let them make simple decisions with it within the confines of your family unit, where any mistakes made will have small consequences. And you can use these as teaching lessons for how to handle it better next time.
Teaching kids about money is a hands-on adventure, not strictly a theoretical exercise.
5. Teach Kids That Money is a Tool, Not an Obsession
Our family is big on giving, and we want to instill that passion in our kids. Going back to #1, our kids pay attention to how we handle money.
We want to reflect that we are blessed to have the money we do, and the choices we make affect not only ourselves but others. And giving to those in need and causes that align with our values is just as important as how we choose to spend money in our daily lives.
And with that, let’s get to today’s guest post from Nelly!
How to Teach Kids About Money at Every Age
Have you thought of educating your child financially as a toddler? Probably not.
But it is as important as making a child learn their ABC’s or 123’s. The financial experts are of the view that you can start money lessons as early as two years old. So, let’s discuss how you can introduce finance to your child and how to teach age-specific financial concepts to make him/her a financially responsible person.
Children Between 2 – 5 Years
Children love to play with coins. So, this is the perfect age to introduce your child to a penny, nickel, dime, quarter, and a dollar bill. They will learn that the larger amount of money is paper money.
As they grow, you can make an imaginary shop in the living room and tell your children to buy things with money. Gradually you can encourage your child to count coins. Children love to do that.
Another good way to play is with fake money. Make play money and give it to your child. Then have some items in the imaginary store. They can be empty boxes of cereals, paper towels, fruits, etc. that can be items available in a shop.
Around 3 years old, children also start learning basic mathematical skills. They can count coins and start doing basic addition. Therefore, put a few coins in a bowl and ask them to group the similar ones together. Then, they can count the number of coins in each category.
When they are about 4 years of age, ask your children to help you clip coupons and take them with you to go grocery shopping. Ask them to find the items in your grocery list and involve them when you make decisions about what items you’ll purchase and tell them how you’re making the decisions.
This is also the age when you should make your children learn to be patient.
How will you do that?
If your kid loves chocolate, tell her that she can get a piece of chocolate. But if she waits, you can give one more, and let the little one decide. Doing so, your child will learn to be patient to get something better. This is similar to the famous marshmallow study at Stanford that showed the benefits of learning delayed gratification early in life.
Another thing you can do is to give them 3 jars and label them ‘Saving’, ‘Spending’ and ‘Sharing’. Whenever they receive any monetary gift or earn something from doing household chores, divide the amount into these 3 jars. This way, they’ll start learning how to manage finances well.
Children Between 6 – 10 Years
After celebrating your kid’s 6th birthday, start giving him/her commissions, not allowances, of about $6 per week. I stress on commission because your little one needs to learn the value of money.
Therefore, assign some household chores and after completing them, give them the amount. However, you can give an allowance sometimes, too.
It is a rule of thumb to give commissions or allowances as per the age; so, it becomes $7 at 7 years of age, $8 at 8 years of age, etc.
This is also the age when you should make them aware of the idea of a career and earning money. They need to have an idea that they have to work to earn and they might have to choose a career based on the amount they want to earn in the future. However, it is also better to choose a job which they would enjoy.
Also, by the age of 10, open a savings account in your child’s name. Encourage him/her to save for long term. Whatever amount he/she is willing to deposit, try to match it. It will encourage your child to save more and he/she can save a significant amount for a big purchase.
This is also a good time to introduce the concept of credit cards. Talk about the advantages and how to manage them wisely.
Around the age of 10, you can talk to him/her about the financial decisions you’re making and the reasons behind it.
One of the best ways to do this is to talk aloud when purchasing items. While buying, use phrases like “do you really need it”, “will it make more sense to buy another item”, and so on. Doing so, unknowingly, he/she will learn how to make good financial decisions. Also you can give him an allowance at the grocery store, for example, and let him decide about certain grocery items to purchase.
Using Video Games to Teach Kids About Money
My friend Melissa has a great blog about personal finance (and 3 kids), and she told me an interesting story about using video games as a tool to teach money management to her kids. So if you’re completely out of ideas, this could be a great way to connect to your kids on their level.
When a friend asked if he could guest post on my site about using video games to teach kids about money, I was a bit apprehensive. Being a mom of 3 kids ages 5-13, I didn’t really see the connection, but I went with it.
Several months later, I found a relatable teaching moment while listening to my son’s concerns about using his “v bucks” in the game Fortnite. He had received gift cards for Christmas and had 2400 v bucks in his balance. Apparently we had talked him into being extra cautious about spending v bucks on skins and upgrades that he didn’t want to spend anything at all from his balance.
He asked me if we could just go to the store and buy another gift card so he wouldn’t have to use his own balance. I took that moment to explain that in real life, if we want something, we have to really weigh the pros and cons and determine if it’s worth subtracting from our savings for.
In that moment, I realized my friend was onto something. There is always opportunity right in front of us to teach our kids about money. We just have to get on their level.
Children Between 11 – 15 Years
As your child gets older, it is important to allow them make their own decisions (and mistakes) in spending. This is a great way to learn as it is always better to make mistakes when his/her parents can help him/her recover instead of making mistakes later on. Giving your children the freedom to make decisions will help them learn how to make good financial choices in the future.
Also, help your teen plan a budget by differentiating between needs and wants. Ask him/her to list his/her needs, that is, the essential things, and wants which they can do without. They need to know that they would have to save to satisfy their wants and will have to be patient for that.
You can also comparison shop with your child. One good way to do this is to make your child decide whether or not it is worth it to buy the premium brands or if they would rather save money by shopping for the same products that don’t have such popular brand names attached to them.
Around 15 years is the perfect age to introduce the concept of compound interest. Calculate and show him/her the positive effects of starting to invest early.
You should also mention that it is a good decision to start saving for retirement right from the month he/she gets the first paycheck.
Children Between 16 – 18 Years
At this age, a child starts experiencing adulthood. They want to make their own decisions and parents need to encourage that. But, this is the age when they get enticed towards advertising. They often feel confused on how to select which product is better.
Help your child understand why advertisements are made and how to find out the real value of an item instead of getting enticed by advertisements.
The age group of 16-18 years is a vital one. Your child already has a bank account. Now, make him/her aware of credit reports and credit score. Pull out your credit reports and discuss with your children the details behind them. They can even help you make your financial decisions if you choose to involve them.
Also, spend time with your child discussing which college and which degree to choose. You should discuss with your child while comparing colleges and shortlisting a few ones. It will also motivate your child to do well so that he/she gets admission in his/her favorite college.
It is not secret that many people are struggling to repay student loan debt. So, talking about how to pay for college and finding an affordable one for you is important. It is also your children’s responsibility to earn and repay the loans on time.
Children 18 Years and Up
After graduating high school, now is the time to actually decide on student loans. You need to consider a lot of factors to decide which college and what student loan will suit you the best.
This is the time when they’ll start doing side jobs to earn extra money and develop their lifestyle. So, prepare them to use credit cards responsibly. Make them understand the pitfalls of incurring credit card debt. They should always try to repay the credit card bills within the billing cycle to avoid paying any interest.
However, if they experience any credit card debt problems, you can help your children to find a suitable solution. You can help them with DIY methods or you can find help on how to repay your credit card debt by opting for debt counseling through DebtCC.
If you’ve instilled financial discipline into them earlier, your children should already be accustomed to budgeting. But, when they’re 18 and going to college, they have to do plan a suitable budget and track expenses. It is the first step in managing personal finances efficiently. Planning a budget from this age also helps them know the art of creating a proper budget plan. They should always try to save at least 10% of their monthly income.
Having an emergency fund is also must. Your children can deposit a little portion of their monthly earning and set up an emergency fund. By doing so, they’ll get into the mode of saving money for emergency purposes in the future.
At this age, children should also learn that “not spending” doesn’t equate to saving; the saved amount needs to be invested in proper places to make it bigger in the future. So, they need to understand investing strategies. There are a ton of resources out there to learn how to invest, but if required, they can talk to financial advisers or to clear any doubts.
In conclusion, I would like to mention that your children imitate you, follow you, and by doing so, learn good habits from you. Therefore, you need to practice good financial habits so that your kids automatically start learning them unconsciously from a young age.
If you manage your finances efficiently, you can help your children follow suit and learn to do the same.
Andrew Herrig is a finance expert and money nerd and the founder of Wealthy Nickel, where he writes about personal finance, side hustles, and entrepreneurship. As an avid real estate investor and owner of multiple businesses, he has a passion for helping others build wealth and shares his own family’s journey on his blog.
Andrew holds a Masters of Science in Economics from the University of Texas at Dallas and a Bachelors of Science in Electrical Engineering from Texas A&M University. He has worked as a financial analyst and accountant in many aspects of the financial world.
Andrew’s expert financial advice has been featured on CNBC, Entrepreneur, Fox News, GOBankingRates, MSN, and more.