How to Teach Kids About Money

It’s never too early to begin teaching your kids about money. However, doing so is not as straightforward as you might assume. Some parents don’t feel confident enough in their own knowledge of financial matters to be comfortable teaching their kids about money. Some individuals feel that discussing money with young children is inappropriate or mistakenly believe that children are too young to grasp financial concepts.

In fact, researchers from the University of Wisconsin-Madison studied the behaviors and attitudes of fourth and fifth graders who were exposed to financial education and concluded that “younger students can learn financial topics and that learning is associated with improved attitudes and behaviors which, if sustained, may result in increased financial capability later in life.”

Culture can also play a significant role in teaching kids about money, as talking about money is considered taboo and even disrespectful depending on your cultural background. However, chatting about money is super important for learning. If we don’t talk, we won’t learn! Talking about money helps us think and talk about why we do certain things with our money and why we think some things are valuable. It’s how we pass these ideas down to our kids.

Beth Koblinger, author of the New York Times bestseller “Make Your Kid a Money Genius (Even If You’re Not),” wrote an article for NPR’s Making Sen$e, in which she described her encounters with parents of all economic backgrounds during a recent book tour. She realized that all parents, whether very wealthy or middle-income earners, had the same questions:

• When should I start talking to my kid about money?
• How do I teach the value of dollar?
• How do I convince my kid that college is worth it?

In her book, Koblinger emphasizes the fact that opportunities to talk to kids about money happen naturally as we go about our daily lives. Parents can take advantage of these “teachable moments” when they arise to help their kids begin building the foundation for a lifetime of financial success.

Lessons & Activities by Age

Researchers from the University of Minnesota suggest focusing “children’s education about money on the concepts of earning, spending, saving, borrowing and sharing.” The Consumer Financial Protection Board adds planning and protecting to these concepts. 

Remember, teaching kids about money isn’t the same for everyone. You can teach not only through conversations but through activities and modeling the positive money behaviors you wish for the children in your life to adopt. 

In her paper “Practice Makes Perfect: Experiential Learning as a Method of Financial Socialization,” University of Arizona doctoral student Ashley LeBaron explores the effectiveness of hands-on learning opportunities for teaching children about money.

LeBaron concludes that parents should teach their children about money through example, explanation and applied practice.

“I think it’s hard for parents, sometimes, to let their kids make mistakes,” LeBaron said. “It’s tempting to just shield kids from everything related to money, but it’s really important for parents to get money into kids’ hands early on so they can practice working for it, managing it and learning how to spend it wisely.”

How you talk to your child about money is essential, sometimes even more than what or when you say it. Considering your child’s development stage will guide you in helping them develop lifelong, healthy money management skills.

Preschool and Kindergarten: Ages 3 to 5

In early childhood, children focus on developing their ability to pay attention and remember information. Children as young as 3 years old understand basic economic concepts.

This is a good time to start explaining that material goods cost money. Simple activities, like getting ice cream and explaining how it’s paid for, can help kids understand this concept. Give them a piggy bank, or better yet, help them establish spending and sharing jars, which will allow them to see what happens to their balance depending on the decisions they make.

This stage is also suitable for discussing the various jobs people have. Talk about your job or other family members’ occupations to establish the connection between working and earning money.

Talk to your preschooler or kindergartener about sharing with others. Show them how to set financial goals and how to meet those goals.

Parents have the greatest influence over children’s money habits, and at this age, your kids are looking to you to set an example and guide them.

Elementary School and Middle School: Ages 6 to 14

In middle childhood, children start forming lasting habits and values. At this age, you can let your child help with small household purchasing decisions like grocery shopping, walking them through your decisions to shop at certain stores, seeking coupons and sales and selecting certain brands according to pricing and your budget.

Encourage them to make decisions with their own money, guiding them to distinguish between needs and wants and set basic savings goals for things like toys or clothes.

As children are exposed to credit cards early in today’s digital world, this stage is suitable for explaining what a credit card is and its use. Make them aware of the consequences of using credit cards to prevent them from viewing it as imaginary money.

You should also begin discussing big-ticket items with them. Koblinger included an example of how a friend of hers used car shopping as an opportunity to teach his 10-year-old “smart ways to save, how to see through clever marketing, how to negotiate prices and how to avoid the pitfalls of loans.”

Furthermore, it’s crucial to introduce the concept of identity theft and prevention. Teach your child not to share personal information and provide tips on email and internet security.

High School: Teens Ages 16 to 19

By the time your child reaches high school, they should be capable of understanding more sophisticated money management concepts and applying them to make an informed decision. They should have a level of financial literacy that includes knowledge of earning, saving, spending and sharing at the very least.

At this stage, a valuable lesson involves understanding a paystub, distinguishing between gross pay and take-home pay. Your teen should also have a grasp of basic banking, capable of managing both bank and investment accounts. Developing skills in comparison shopping and basic budget management is crucial.

As teens start driving, it becomes important for them to comprehend car insurance and other types of insurance policies relevant to their transition into young adulthood. This knowledge equips them to navigate the financial aspects of emerging responsibilities.

Credit card companies target college students, so you’ll also want your child to be aware of the dangers of maxing out credit cards, how interest works, credit limits and the importance of building credit responsibly.

Talk to your teen about the value of money. This includes emphasizing the difference between wants and needs and making sure they know your values when it comes to money. These conversations won’t be easy, especially when they see their friends wearing designer clothes and taking out their parents’ credit cards when they go out.

Just remember, you’re not alone. Many parents care about their children’s financial well-being and want to instill positive values.

How do you know if you’re on the right track? Below is a checklist that was adapted from “Money Sense for Your Children,” Alice Mills Morrow, Extension Family Economic Specialist, Oregon State University Extension Service.

Checklist for Parents

• Do each of my children have some money to manage without my interference?
• Have I helped my children set up a spending and saving plan?
• Do I avoid using money as a reward or punishment?
• Do each of my children do some regular household chores?
• Do I set a good example by being truthful about money matters?
• Do I give my children more financial responsibilities as they get older?
• Am I a good money manager, giving my children a good example to follow?
• Do I allow my children to make their own decisions about money when there are alternatives?
• Do I praise my children if they have made wise decisions with their money?
• Do I help my children find ways to earn extra money that is age appropriate and suits their abilities and skills?
• Do I allow my children to make mistakes related to money and help them to understand the consequences?
• Do I sometimes verbalize my own desire to acquire more goods and services than my income can handle so that my children know that I say “no” to myself, too?

Source: University of Minnesota

When I was growing up, I fixated on a pair of leather sandals. My mom refused to buy them for me unless I paid for them myself, so I ended up getting a job at a local nursery. Looking back, that was the best thing my mom could have done for me. She also had my brother and me balance our checkbooks each month while we were in high school. Though it was painful at the time, it taught me lifelong financial planning skills.

Rubina K. Hossain, CFP®Client Advisor for MEIRA

Certified Financial Planner Rubina K. Hossain is chair of the CFP Board’s Council of Examinations and past president of the Financial Planning Association. She specializes in preparing and presenting sound holistic financial plans to ensure her clients achieve their goals.

Software Applications for Teaching Kids About Money

There’s a fine line between preparing children to be financially responsible and tarnishing their relationship to money.

Miata Edoga, president of financial education company Abundance Bound, told Parentology, “We don’t want our kids to be afraid of spending, be afraid of managing credit. We want them to feel confident in their ability to negotiate successful financial lives, to come at money from a place of power, rather than fear.”

The information age ushered in new media teaching platforms and introduced the world to the “digital native.” New educational apps for kids are launched regularly. These technological tools use interactivity and gamification to make financial concepts fun for children and teens.

In addition to educating kids about core personal finance topics, these apps simulate the digital-era experience of using credit and debit cards, mobile payment methods, digital wallets, online banking and one-click shopping.

Jason Young, founder and CEO of MindBlown Labs, reiterated a well-known fact in a 2020 interview with Parentology, stating “research shows that people spend much more when transacting digitally than they do when using cash.”

Apps and Online Games that Teach Kids About Money

While it can be a bit intimidating to teach kids about money, the rewards for both you and your child will far outweigh any frustrations the lessons may cause. And, fortunately, now more than ever, parents have a host of resources at their disposal, from apps and simulations to good old-fashioned discussions and real-life scenarios.

The most important thing is to convey the need for smart money management and allow your kids the chance to practice these skills in their daily lives.