Teaching Your Kids About Money

Tips for Teaching Kids About Money

The idea of money can be tricky for children to grasp and their understanding of dollars and cents can be a little lacking. Below are some tips to help children of any age learn about money, how to save it, and how to start good financial habits.

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• Talk to your children about money. Consider this: it can be incredibly difficult to grasp a new concept if you’ve never heard about it. This is especially true for small children who are just beginning to understand more complex ideas. By talking to your kids about the concept of money from an early age, you can shape the way that they think about saving and spending. The more they hear about it, the more they’ll understand. Additionally, let your little ones “pay” a cashier by being in charge of handing over any cash. This lays the foundation for understanding financial transactions, and your children might view it as a fun game.
• Discuss wants vs. needs. One of the first steps to teaching kids about money is distinguishing between wants and needs. Explain that everyone has basic needs like food, shelter, clothing, education, and healthcare and that you have to spend money on needs. Everything that isn’t a “need” is a “want.” This covers everything from new toys to concert tickets, smartphones, and devices. Help younger kids identify which things are needs and which things are wants and explain how the “wants” might have to wait sometimes.
• Allow your kids to earn their own money. It’s hard for kids to learn about money if they don’t have any of their own. Giving your kids a small allowance helps them learn about making choices with their money. Allow them to earn it by helping out around the house, which teaches them the value of their hard work. If your kids are older and want to earn extra cash, but aren’t old enough for a job, they might be able to do yard work for a neighbor, babysit or pet sit, shovel driveways in the winter, and wash car. Not all of these may apply for you and your children, but they’re great starting points.
• Talk about savings goals. If your child has identified something that they want, talk to them about saving their money in order to buy it. Whether that cash is earned by helping other, as allowance, or as a gift for a holiday or birthday, explain how to set aside some money for their goal. Work with your child to figure out how much to save at a time and where to keep it.
• Provide a place to save money. Younger kids might take great pleasure in stashing their bills and coins in a traditional piggy bank. Older kids might benefit from opening their own bank accounts. That way they can see their savings grow over time and see a record of money going in and out of the account. Another way to help your kids save is to act as the banker and hold their saved money for them. It’s up to you if you’d like to pay out interest.
• Play a game. Monopoly might have a bad reputation for exposing ruthless behavior, but its ability to teach people about money is undeniable. There are lots of other games that involve money and have a banker. If board games aren’t your family’s style, play “store” and give your child some fake money to “shop” with. Help them make their purchases and understand if they have enough funds for all their purchases.
• Use an app. The younger generation is more tech-savvy than ever, so one way for teaching kids financial literacy is to use an app. There are apps that track allowance spending and saving and act as virtual piggybanks. Others show older kids how to spend frugally and save money for short-term goals. They can also learn how their daily lifestyle choices can make big differences in their accounts by seeing the difference in real time on the apps.
• Help them create a budget. For older kids who are regularly spending and earning money, having a budget can keep them on track. Microsoft has some downloadable budgeting tools to help your kids learn how to manage their money and make smart financial decisions about everything from buying a car to deciding what to do with extra cash.

There are lots of opportunities for parents to teach kids about money and financial literacy. It can be as simple as explaining a financial transaction at a store, or as complicated as talking about investments and saving for the future. It’s important for kids to understand money and the earlier this topic is introduced, the better off they’ll be.