Question: What is arguably the most fundamental, life-survival skill *not* being taught in most American schools today? You guessed it — financial literacy! In fact, only 28% of U.S. states require high school students to pass a personal finance course to graduate.
As a result, the onus is upon parents and caregivers to teach kids the vital skill of fiscal responsibility. Hopefully this means we are intentionally teaching our children through lessons and examples to shape healthy perceptions of money.
Money is a fundamental part of life and teaching kids about money is part of being a good parent or caregiver. If you don’t, somebody else will, and there’s a good chance that somebody else will have no idea what they’re talking about. Teaching kids financial literacy when they’re young lays the foundation for responsible money management in adulthood.
In this article we will cover the foundational money principles that will have the biggest impact on the way our kids view money.
Ways to Teach Kids About Money (PRESCHOOL)
You may have heard the saying, “Kids are smarter than you think.” In fact, research has shown that children as young as 3 years old can grasp financial concepts like saving and mindful spending. Another study found that money habits in children are formed by the time they turn 7.
Here’s a few effective ways preschoolers and kindergarteners can be taught about money:
1. Make Money a Tangible Experience
Whether you realize it or not, young children are watching and listening to everything you do – and absorbing it like a sponge! This includes your interactions and dialogue surrounding money. Are you paying with cash or credit? They notice. Are you and your spouse constantly arguing about money? They see it.
The idea is that you want to create healthy examples of handling money for children to observe. Unfortunately, this concept has grown increasingly challenging in the digital environment we live in today.
Think about how your grandparents handled money and incorporate some of these simple ideas that kids can easily pick up on:
- Use cash to allow children to see how money is exchanged more tangibly.
- Take kids to a physical bank and let them see you withdrawing and depositing cash.
- Explain to them the importance of a savings account.
- Install the three-jar system (give-save-spend) to teach kids the core basics of money allocation.
2. Using Toys to Teach Money
I inadvertently began teaching my son the core concepts of money through the use of toys around the age of 2. Come to find out, kids love toy cash registers! Both of my sons have played with several different cash registers and have enjoyed them all. They currently have a grocery store set that came with a little basket with fake food items along with the cash register and play money (coins, paper, and a debit/credit card).
While it might seem like innocent fun, pretending to go to the grocery store is actually helping teach kiddos the basic concepts of exchanging currency for a product. Additionally, a make-believe grocery store gives you the opportunity to explain how much things cost, how to read price labels to identify which items cost more/less, and how to count money. Witnessing my son play with fake money sparked my idea to have him start playing with real money.
3. Learning to Count and Identify Currency
Kids learn to start counting as early as 2 years old. Once they have developed a good grasp of the numbering system, they will be able to make the transition to identifying digits on currency.
When my oldest son was around 3, I decided to go to the bank and withdraw one bill and coin of each denomination. In case you’re wondering, the amount totaled $188.41 with individual bills of $100, $50, $20, $10, $5, $2, $1, along with coins of a quarter (25¢), dime (10¢), nickel (5¢), and penny (1¢).
I sat my boy down at the table, spread out the cash, and started discussing the different bills and how, even though they all looked similar, they each had a different value. I then pointed out where the numbers were and had him correctly identify each one. By the way, this also helps teach kids their numbers by using single, double, triple digits bills as examples.
After my son caught on to where the numbers were located on the bills, next it was time to learn about the value system. I proceeded to lay two different bills down ($10 vs. $20) and asked him which one was more. We did that exercise with all the bills and repeated the process with the coins. It turned out to be a great lesson and he was surprisingly engaged most of the time.
4. Always Pick Up Coins
Kids love to pick things up off the ground like trash, sticks, or even poop! (they don’t mean too, they just find everything interesting.) As adults we constantly tell them “No, that’s dirty! Don’t pick that up.” But we should make an exception for any money found on the ground.
Found money should be an exciting experience, celebrated by taking those coins home and saving them for something special. Kids pick up on important events like this and learn to have profound respect for money – no matter the denomination.
Ways to Teach Kids About Money (ELEMENTARY & MIDDLE SCHOOL)
When kids start first grade, they begin noticing what everyone else has and, by proxy, what they lack – a situation I call the comparison trap. Because kids view you as a human ATM, this is also a great time to take them shopping with you and discuss prices, sales, coupons, and how to maximize your dollars. The idea is to teach them that you don’t have an unlimited supply of cash.
Here are some methods to teach elementary and middle schoolers about money:
1. Money Resources for Kids
As kids begin to grasp the concept of “I need money to get what I want,” you might be excited to discover a wealth of educational resources available to assist you such as books and games.
Visit your local library and you’ll find several helpful money-related books in the kid’s section. Consumer advocate Clark Howard has a book titled Clark Smart Parents, Clark Smart Kids: Teaching Kids of Every Age the Value of Money and Dave Ramsey has some outstanding resources for kids as part of his Financial Peace Junior Kit. [See more resources at the end of this article.]
Specifically, there’s one book that my son has really resonated with titled Rock, Brock, and the Savings Shock by Sheila Bair. The story is about two twin brothers named Rock and Brock. Their grandfather presents them a saving plan to teach them the concepts of delayed gratification and compound interest. Brock saves his money and watches it grow while Rock succumbs to a consumerism mindset and blows his cash on meaningless items like candy and toys. As time passes, Rock observes how Brock handles his money and starts changing his spending habits.
Perhaps one of the best board games to teach kids about money is the timeless classic Monopoly – the game of buying, renting, and trading the world’s most famous properties. Kids can learn numerous life lessons from playing this game such as how to strategize, counting and prioritizing money, decision-making, negotiating, and coping with winning and losing.
2. Paying an Allowance
The concept of giving (or not giving) kids an allowance is a hot-button debate in parental communities. When children ask adults for money, a common response is, “Money does not grow on trees!”
However, giving kids a small allowance can have many benefits. If you give an allowance based on chores, it will teach the value of work and how it equates to earning money. If you opt to just give an allowance without the work-based incentive, it will still prove worthy because it will provide youngsters the opportunity to manage their own money. Either way, finding a way to get money into the hands of your kids will pay dividends as it helps them to encounter the tradeoffs that inevitably come when you have money in your possession.
There’s a general rule of thumb, and I think it’s helpful, which is to give kids an allowance equal to their age. For example, a 5 year old would receive a $5 allowance per week, etc.
3. Discuss the Concept of Opportunity Cost
It’s imperative that you discuss with kids how much things cost and how you are paying for them. Youngsters will constantly find themselves in a dilemma of wanting to buy more than they (or their parents) can afford.
Therefore, opportunity cost is simply another way of saying, “If you decide to buy that video game, then you won’t have enough money to buy that bike.” These situations present kids with invaluable moments of weighing decisions to understand the possible outcomes.
Along these same lines, it’s also a good idea to show kids how they can become better bargain shoppers to stretch their dollar further. For example, you can present scenarios such as, “You can buy this one video game for $50, or you can buy these two video games for $20 each and still have $10 left over.”
These types of real-life scenarios can really help the concept of money click in their young and impressionable brains.
Lastly, with the rise of subscription services, talking about the Rule of 173 will arm them with a tool to help evaluate small ongoing costs. It takes into account the opportunity cost of investing that money instead, over a 10 year period earning 8% interest.
Ways to Teach Kids About Money (HIGH SCHOOL)
When kids become teenagers and enter high school a whole new world of opportunities unfolds for them. Now they are of legal age to work which offers many more teaching moments. Additionally, it’s time to start thinking about life after high school and life after living at mom and dad’s house.
Here are some money concepts to help high schools learn about finances:
1. Determining Needs vs. Wants
The concept of determining needs versus wants is something we all struggle with. Although you can certainly begin this discussion with kids when they are younger, the challenge is at pre-high school ages just about everything is going to fall under the want category.
A good exercise would be to have your teen write down everything he/she bought in the past week and put them into two columns – Needs and Wants. This practice will force your child to rethink about the goods or services they bought and consider if they really needed them or not.
A byproduct of the wants category is impulse purchases. Perhaps you’ve found yourself in this situation, “Mom, I just found this cute dress. It’s fabulous and I love it! Can we buy it please?” Of course, it’s always an easier decision when it’s someone else’s money. Seize the opportunity to help your teenager understand impulse buying versus long-term goals. Explain the difference between needs and wants, and how to prioritize them.
We all succumb to impulse buys, but we must learn to recognize them and limit them the best we can.
2. Working and Saving for College
One of the best ways to teach your teenagers about handling money is to give them a chance to earn some of their own. Once your teen turns 15 (14 in some states), they are now legally of age to work. Explore different job options and discuss their roles, responsibilities, and potential pay/benefits.
This is also an excellent opportunity to explain why your salary isn’t how much you take home (net pay vs. gross pay). Explain taxes, Social Security, insurance premiums, and other deductions that will be cited on a typical paystub.
Due to the skyrocketing cost of college, it’s never too early to begin the “What do you want to do after high school?” conversations. There’s no better time than now to have your teen start saving for college, especially if they’ve started working. As you and your teenager begin preparing, compare the costs, and discuss how you’re going to pay for college.
Not every high schooler needs to go to college, and some schools are much more expensive than others. Along with college options, research available scholarships, grants, tuition reimbursement programs, and loans.
Speaking of loans, demonstrate to your teen it’s in their best interest to do whatever they can to avoid student loans. Present all the alternatives that will help lower the cost, such as attending community college, going to an in-state university, working part-time while in school, and applying for scholarships, etc.
3. Open a Bank Account and Start a Budget
When your teenager opens their own bank account it gives them a lot of responsibility. A simple checking and savings account are a good place to start. This move will help teens take their money management to the next level and will ultimately prepare them for managing a much larger account when they are older.
In today’s advanced technological society, teens are attached to their smartphones. Use that to your advantage by helping them find a good budgeting app that will get them into the habit of tracking all their income and expenses.
Budgeting will help teens lower their anxiety about money as it will allow individuals to control their money as opposed to their money controlling them. Here are 4 easy budgeting methods you could teach them, with some app recommendations too!
4. Books, Podcasts & Social Media
Teenagers get A LOT of influence from social media. While some of it is bad and unhealthy, some content is extremely effective in teaching kids life skills! It might be worth checking out a few money-focused social media accounts that your kid would like. There’s a large number of personal finance influencers in various niches with all different types of backgrounds.
Older, more mature teens might like to read personal finance books. Robert Kiyosaki’s Rich Dad Poor Dad has a teen version, and here’s a book for more reluctant readers: I Want More Pizza, by Steve Burkholder.
Podcasts are the new radio (for teens). Based on their interests they might like money-based podcasts that specialize in topics of earning money, saving money, or investing for beginners. We’ve listed a few suggestions at the end of this article.
Bottom Line/Final Thoughts
There’s no better investment you can make in children than teaching them financial responsibility, which will lead to long-lasting self-sufficiency in life. Even though most American schools do not teach financial literacy, there is a plethora of tremendous resources available to assist in educating your loved ones.
Learning how to handle and manage money is a lifelong process. However, the earlier you can instill good financial habits into children, the more likely they are to discover financial success and freedom in the future!
More Resources: Dive Deeper
Here are more resources to help teach kids about money, saving and a little bit about investing also!
- Intentional Children: Raising Money-Smart, Mindful Kids of Intention and Purpose by Kalen Bruce
- I Am Not Your ATM: A Practical Plan For Teaching Your Teen To Manage Money by Rachel Murphy
- Your Kids, Their Money: A Parent’s Guide to Raising Financially Literate Children by Clifton Corbin
- M is for Money by Rob Phelan
- Money Ninja: A Children’s Book About Saving, Investing, and Donating (Ninja Life Hacks) by Mary Nhin
- Smart Money Smart Kids: Raising the Next Generation to Win with Money by Dave Ramsey and Rachel Cruze
- Marriage, Kids and Money podcast with Andy Hill
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