Teaching Kids About Money — Financial Education Basics
If there’s one constant in our rapidly changing world, it’s that every generation thinks the one coming up after it doesn’t understand the value of a dollar. And to a certain extent, that’s probably true. After all, it’s impossible to understand the true value of something until you’ve had plenty of experience with it yourself.
However, that doesn’t mean kids have to wait until adulthood to learn about money. The sooner they’re exposed to the concepts surrounding money, saving and spending, the sooner they’ll come to understand and appreciate these financial education basics.
Whether you’re teaching your own kids, have nieces and nephews or are around friends’ children, we can all play a part in teaching kids about money.
Just because pre-school age kids haven’t learned how to add and subtract doesn’t mean they’re too young to learn the basic concept of exchanging money for goods and services. Use everyday activities like grocery shopping or filling the car with gas to explain that we don’t automatically get to have the things we need; we must pay for them first.
Working for a Living
Once kids grasp the concept of money in exchange for goods, the next logical question will likely be, “Where does the money come from?” This is the perfect time to explain that adults get paid to go to work and that money is used to pay for all the things we need (and some of the things we want). This knowledge often sparks kids’ entrepreneurial spirit and may prompt them to ask what they can do to earn money themselves.
Budgeting is another concept that can be introduced early and expanded upon as kids’ knowledge grows. Explain to small children how the family budget has to be divided to cover essentials such as housing, transportation and groceries. Talk about how everyday spending decisions, such as buying generic vs. name brand, can help the family stay on budget. Give older kids some real-world budgeting experience by designating a set amount they’re allowed to spend on school clothes or holiday gifts and letting them decide how to divvy it up.
Spend, Save, Share
An easy, fun way to help kids understand how every dollar counts is to create a “spend, save, share” system. Every time they receive money – whether it’s from an allowance, gift, or doing odd jobs, divide the total into thirds and dedicate a portion to savings, a portion for spending and a portion for charitable giving. Make it fun by labeling and decorating three jars and letting kids make their deposits into each. They’ll enjoy watching the money add up and learn responsibility by deciding how to spend it, what they’re saving for and which cause captures their heart for a donation.