Teaching children about money from an early age is important for a number of obvious reasons. It helps young people people understand how finances work, what options and tools are available to help, and why it’s important to manage their money. Perhaps most importantly, however, is the ability money has to teach a certain level of responsibility in young adults. Lessons that help prepare people to make more well informed decisions in every-day life.
Below is a guideline with other helpful links for parents to help introduce the increasingly complex concepts of finances as their children get older.
0-3 years old
Counting - Obviously new parents don’t have to worry too much about teaching their infants about the concepts of money. Before you can introduce money to a child, they first need to learn how to count. Once that happens, however, start to introduce money into the mix. Fake coins and bills are a great way to do this while strengthening math skills (without the choking hazard of smaller/real coins).
Get your own finances in order - Just because parents don’t have to think too much about teaching their children about money doesn’t mean there’s nothing to be done. If not for your own sake than for the sake of your child: get your own finances in order. Also, the day your child is born, parents should consider taking advantage of tax saving investment programs. Start planning and saving for your child’s financial future with programs like UGMA and UTMA accounts, tax-exempt municipal securities and savings bonds, and 529 plans or similar education savings accounts to help pay for the rapidly increasing costs of college education. One of the best ways to teach responsibility with money to your kids is by being a good example. This is a start.
Links for parents:
- Guide to 529 Plans – Tax savings investment program for your child’s college education
- UMGA & UMTA accounts – Information and links for the options & benefits of investment programs for children/parents
3-8 years old
Math & Currency - Once children have started counting and learning basic math skills like adding and subtracting, it’s important to have them start learning to count, add, and subtract currency. Not only will this help them develop an early understanding of denominations, but it will also help children develop more complete math skills. Help them learn how much each coin/dollar is worth in relation to each other play games that encourage them to use these skills like making change. Click here for a great money/math game for kids.
Introduce spending – The concept that money is used to make purchases is something that should be explained as early as possible. When they’re old enough, allow your kids to hand cashiers money and receive change when they’re with you at the store. Turn every-day situations into lessons and they’ll quickly catch on: money buys stuff.
Saving and Piggy Banks – Believe it or not, kids don’t need to be taught much about how to save. When you feel like they’re old enough, buy them a piggy bank and they’ll start feeding it right away. Kids under 8 probably don’t have too many opportunities to spend money on their own, so saving won’t be a problem. When they’re ready to use their money to buy something they want, help them count to see if they have enough. If not, explain to them that they need to save more until they do. Also, make sure they understand that they can’t have both the money and the purchased item (kids this age may not fully understand this concept yet).
Links for kids:
- Peter Pig’s Money Counter – A great game for sorting, counting, and valuing change
- Money/Math Game for Kids – A simple game that teaches kids to count using change & currency. (3 difficulty levels)
Links for parents:
- thriveby5 – A great set of activities for toddlers and parents.
- thehappyrock.com – A fantastic story about a toddler’s first lesson in money & spending.
9-13 years old
Saying NO - At this point in their lives kids should start to catch on to the fact that money doesn’t grow on trees. That is – unless you buy them everything they ask for. More and more, the things they want should start to become their own financial responsibility. As a result, they will be eager and ready to take on more personal responsibilities as well.
Allowance & Chores – The best way to teach kids how to be personally responsible for their own purchases is to assign regular chores in exchange for an allowance. It’s vital that kids this age learn that money must be earned with hard work. Be specific, critical, and diligent about their chores. Inspect their work to make sure that it’s completed and that no short-cuts have been taken. Do not pay them for incomplete or unsatisfactory work.
Goal Setting – At some point, your child will likely want to make a large purchase (like a new bicycle or large dollhouse, etc.) that is more than they can usually afford. Use this as an opportunity to teach them about saving money for something they really want. Help them set the goal of how much they need to save and how long it will take them to save it. Use their current chores to give them perspective. ($200 bike = mowing the lawn 40 times @$5 per mow) If need be, give them extra incentive by subsidizing part of their purchase. (If they save $100, you’ll pay for the rest)
Lessons of Value – Before your kids settle on any larger purchase, sit down with them to have a talk about value. Explain that not all bikes are built the same. Some will last longer than others, some may be outgrown too quickly, and some are more fun than others, etc. Get them to think about WHY they want an item so that they can decide which one will have the most “value” to them.
Links for kids:
- Mad Money Flash (PBS.org) – A flash game that teaches budgeting, earning, and frugality.
- More games for kids under 13 – A dozen or so more kids games that can teach money principles.
Links for parents:
- MoneyInstructor.com – A nice collection of reading and activities you can do with your pre-teen to teach money matters.
- Parenting Pipeline Newsletter [PDF] (iastate.edu) – Fantastic reading for parents of preteens looking to instill good money management habits.
- Teaching saving to preteens – A simple process to help teach preteens the concept of saving money.
13-18 years old
Savings/Checking account – Perhaps once a child understands the concept of saving money it’s time to get them their own savings account. Teach them the basics of banking: deposits, withdraws, and go over their statements with them so they understand what they’re looking at. Go with them to the bank at least once a month at first so you can guide them through the process of depositing and/or taking out money.
Once they understand basic banking principles, it’s time to get a checking account. Teach them how to write a proper check and how to balance a checkbook. Teach them to always compare their balance with their monthly statements to make sure everything is accounted for and all checks have been cashed.
First Job – At some point, home chores and allowance might not be enough for your child and they’ll seek part time employment. This is a perfect time to instill good habits like putting a portion of each paycheck into savings and budgeting. Try to deter bad habits like living pay-check to pay-check and erratic spending.
Car & Cell Phones – Far be it from me to tell parents when to get your child a cell phone or buy them a car. I will, however suggest that these items can be a tool for you to teach personal monetary responsibility and the concepts of paying bills.
If your child want’s a cell phone, explain that they will have to do chores to save up for their choice of phone and also pay for (a portion?) of the bill. Cell phones are expensive and have monthly bills, don’t let your child take this for granted.
A car is a big purchase. Resist buying one for your child outright. Instead, offer to pay for a portion (example: half of a used car up to $5000) and the rest should be up to them. Make sure they understand that gas/maintenance/insurance is their own responsibility, too. Offer to help pay for more gas/bills if they help run errands with the car (groceries, etc.). This way, your children don’t take for granted the costs associated with owning a car which will help them make better decisions around this important purchase in the future as well.
Credit & Debt – Before your kids turn 18 and move away from home/go to college, teach them about credit cards. By now they probably have a bank account (with debit card) and understand that using it for purchases comes out of their bank account. Credit card abuse, however, is all too common for young adults.
Make sure that your child understands the following about credit cards:
- All purchases must be paid for eventually (sooner is better)
- Explain interest rates and remind them that credit card rates are extremely high
- Explain how debilitating credit card debt can be.
- SO DON’T USE A CREDIT CARD UNLESS YOU CAN PAY FOR THE ITEM
College – College is a big decision for young adults. It’s becoming increasingly expensive and increasingly difficult to pay for with loans. Explain student loan debt and set out their options for financing schools. Make sure they’re aware that if they need to use loans to pay for school that they’ll be paying for them from the day they graduate until it’s paid off, sometimes 30 years or more. Sit down with them and review their options. Financial options should be a big (but not only) part of the decision process. While school/program quality must also be a consideration, make sure your child is fully aware of the costs. Not only will this help make a more informed decision about college, but it will also help give them perspective that they are the ones paying for much of it so to take it seriously.
Savings, Investing, & Retirement – The younger kids are when they learn the concepts of investing and saving for retirement, the earlier they are likely to start. And if there’s one principle that you could go back and tell your past self, it’s: start earlier. As soon as they’re 18, have your child start their own IRA.
Links for Teens:
- Mint.com/teens - a great place for teens to start learning about money and savings.
- Keep Learning (fool.com) – An unbelievable list of resources and stories for teens to learn more about proper money management.
Links for parents:
- Money Smart teens (homeedmag.com) – A nice collection of reading including links to related websites and suggested books.
- Teaching Teens about money (onemoneydesign.com)- Some more simple guidelines specific to teens.
- Allowances etc. (simplemom.net) – Simple steps for allowing teens financial independence and responsibility.
- Tips by parents for parents (byparents-forparents.com) – another great list of tips for parents of teens.