Top Five Ways to Teach Children about Money

Welcome back to our Top 5 Series. This month’s post will continue with our latest subseries ‘Top 5 Home Learning Series’. Previous posts in this subseries include ‘Top Five Weekend Activities for Kids’ and ‘Top Five Tips for Traveling with Children’. Previously, we covered a variety of topics within our ‘Top 5 Parenting Series’. The posts in that subseries include ‘Top Five Rainy Day Ideas for Parents’, ‘Top Five Tips for Creating Better Sleep for Your Child’, ‘Top Five Tips for Raising Independent Children’, ‘Top Five Tips for Improving Picky Eating’, ‘Top Five Tips for Building Family Bonds’, and “Top Five Tips for Balancing Technology in Your Home”..

Introducing children to the concept of money at a young age is vital for their long-term financial literacy and success. In this blog post, we will explore effective strategies and ways parents can teach their children about money management. From setting savings goals to introducing budgeting techniques, this article will provide valuable insights and practical tips for making financial education a fun and engaging experience for kids. We touched on teaching children about money in our blog post titled ‘Top 5 Tips for Raising Independent Children’. We felt that the topic was so important, though, that we chose to give it its own post.

Why is this a topic we feel is important? According to an article on Yahoo Finances website:

“Most Americans have some credit card debt. A recent Clever Real Estate survey found that 3 in 5 Americans (61%) are in credit card debt, owing an average of $5,875. In addition, 23% say they go deeper into credit card debt every month and 14% say they’ve missed a payment in 2023.” ¹

So even if you fall into these categories, likely your goal is to give your child the gift of financial literacy. And if you're wondering how to nurture your child's financial literacy from a young age, keep reading!

Tip 1: Teach your children the names of the different coins and bills 

Teaching very young children about money can begin by teaching them the different coins and bills.

Very young children won't fully grasp the concept of money, but you can start by teaching them about the different coins and bills. Introduce them to the names of each coin and bill, such as pennies, nickels, dimes, quarters, and dollar bills. You can make it a fun activity by showing them real examples of each and explaining their values. Encourage them to identify and differentiate between the coins and bills they come across in their daily lives, whether it's during a trip to the store or while playing with pretend money.

My girls over the years have always enjoyed handing money to the cashier at the store. This is a great time to begin to tie in the value of money. So not only do they get to touch and see the money, but now they are exposed to the practice of paying and learning each coin or bill’s value.

Do you have an older child? You can begin to explore math when paying at store. Let them see the total, pull out the appropriate bills and coins to pay. And then ask them if or how much change they should get back. Another fun idea for older children is exploring currency used in other counties.  If we want our children to be financially literate, we have to start with the most very basic of concepts.

Tip 2: Avoid impulse buys

Avoiding impulse buys teaches your child the importance of delayed gratification.

Teaching your child the lesson of patience and delayed gratification is an important one. Encouraging your child to avoid impulse buys can be a valuable tool in teaching them about money. By instilling the habit of thinking before making a purchase, you can help them understand the importance of patience and delayed gratification. One way to do this is by setting saving goals with your child, such as saving up for a special toy or treat. This not only teaches them the value of money, but also develops their patience and self-control.

This can be a challenge tip for multiple reasons. First off, many of us adults struggle with impulse buys. We feel like we work hard for our money and we want what we want. Secondly, we want to offer our children nice things- especially things that maybe we didn’t have as children. However, just as many hard things are, it is important that we teach our children even the most challenging of concepts for their lifelong health- whether it be physical health, emotion health, or financial health.

Tip 3: Needs vs Wants

Discuss with your child the difference in want vs need to help them understand how to spend money.

Teaching your child the difference between wants and needs is an essential skill that can help them develop a healthy relationship with money. By explaining that needs are things that are necessary for survival, such as food, shelter, and clothing, while wants are things that are nice to have but not essential, like toys or gadgets, you can help your child prioritize their spending. Encourage them to think critically about their purchases and ask themselves if it's something they truly need or just want in the moment. This will set them on a path towards making more informed financial decisions as they grow older.

This is a conversation I have with at least one of my girls at least once a week. As our children grow up, they begin to be more observant about the things around them- including what their friends have. It is easy to continuously want and want, and what can help that cycle is stopping to reflect on our needs. 

Tip 4: Offer an allowance

Some families find it beneficial to teach their child about money through an allowance.

Offering your child an allowance is a great way to help them understand the value of money. By providing them with a set amount of money on a regular basis, they can learn important financial skills such as budgeting and saving. Additionally, an allowance allows them to make their own purchasing decisions and experience the consequences of their choices. This hands-on approach to money management empowers children and teaches them about the real-world implications of their financial actions.

You can handle allowances a variety of ways. I know many families who offer an allowance- weekly or monthly- regardless of behavior or responsibilities. I also know many families who offer allowance, but only after they are earned. While requiring the child to earn an allowance is great, each family has to decide what is best for them and their children. Allowances allow children to experience real life decisions and consequences of impulse purchases and wants vs needs. An article on U.S. News and World Report states that “Giving your child an allowance will help them learn to make…budgeting decisions. If they overspend one week, they'll have to budget better the next week. These little lessons can be helpful in teaching about the balancing act that budgeting requires.” ²

 It also takes some of the pressure off of parents to always answer ‘yes’ or ‘no’ when presented with a purchase request from their child. Now their child is forced to make the decision if a particular purchase is worth the cost. 

Tip 5: Introduce Saving

A child is never too young to start saving!

Introducing the concept of saving to children is an essential step in helping them understand the value of money. By explaining that setting aside a portion of their allowance or earnings for future needs or wants is important, you can teach them the importance of delayed gratification. Encouraging them to set goals for their savings, such as saving for a new toy or a special outing, can make the concept more tangible and relatable. Additionally, discussing the benefits of saving, such as having a financial cushion for emergencies or the ability to afford larger purchases in the future, can further motivate children to prioritize saving.

Simply put: you are never too young to start saving! Being transparent and open about saving is always a great idea with children.

What money literacy tips did we miss? We would love to hear about how you teach your children about money!

 Sources:

1. Olya, Gabrielle. “Jaw-Dropping Stats About the State of Debt in America”. Yahoo!finance, 16 October 2023, https://finance.yahoo.com/news/jaw-dropping-stats-state-credit-130022967.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAALdYGHl0YB5ytYo0JMoLZZFaa2gOfYIPR8qdJKRqSsgWeXwPoeMkVBDPw5-AG2FGqHpkx8agWhX2maYeBMZ1_00iMhQtC8d-S5gJiHmUKWLnb2wYHGzv0gtkSXYIWT5p8UMVhzwXvu0IzXRsldsexUWFtLcr88IJVGGyWoDDax9L#:~:text=Most%20Americans%20have%20some%20credit,missed%20a%20payment%20in%202023

2. Snider, Susannah. “The Pros and Cons of Giving Your Kids an Allowance”. S. News and World Report, 21 May 2019, https://money.usnews.com/money/personal-finance/family-finance/articles/the-pros-and-cons-of-giving-your-kids-an-allowance.