How to Teach Your Children About Money
How to Teach Children About Money
When my firstborn started talking, walking, and growing, I was quick to pick up the educational toys and books to help teach him shapes, colors and the alphabet. These things are important, right?
At two years old, I noticed that he became fascinated with money. This made me really start thinking about how I could teach him and the rest of my children about money.
I have found that far too often the opportunity is missed to teach our children one thing that is rather essential, financial literacy. Think about your own experience with money as a child and how it has affected your financial decisions as an adult.
Teaching children about money and savings at an early age may help them SIGNIFICANTLY in their future. That’s why I feel so strongly about why you should teach kids about money.
A few tips about teaching your kids about money:
- Start Early – the sooner kids understand that there isn’t an unlimited source of money coming from an ATM, the better
- Involve them in budgeting – don’t be so secretive about your household budget. It shouldn’t be mysterious to them. Have them learn from your mistakes and from your smart choices… from your EXAMPLE!
Here are a few basics principals that every parent should talk to their children about in respect to money.
Where does money come from?
In order for children to understand the value of money, they must first recognize where it comes from. Many might believe that money grows on trees or that it is magically produced from your wallet. My favorite one is that it somehow appears after punching a few buttons on the ATM.
Children can have so many ideas about money so it is our job to clear it up for them. Educating our children on how money is earned will not only help them understand the worth of money but also help them better appreciate it.
I was driving my son and his friend the other day and I overheard this conversation:
Boy 1… My mom bought that stuff with her debit card.
Boy 2… What’s a debit card?
Boy 1… It’s a card that never runs out of money.
Haha. I thought that was funny, but the financial teacher in me had to point out that a debit card only has as much money as you put in the bank and if you are not careful, it will run out. Gotta take advantage of those teaching moments when they come along, right?
Take the time to explain where money or income comes from in your household and how several adults have jobs in order to earn money. It may also benefit your child to talk about hourly wages or salary.
Talking to your children about how money is earned may even spark their interest in how they can earn their own money. Kids earning their own money is a very important part of teaching your kids about money.
Idea: Help this hit home by having your child to do some work around the house (outside of their household chores) to earn a little bit of money. I like to have them clean walls and baseboards and do some things that will stretch them a little. Have them pick out a toy they want for themselves or for a friend. Once your child has earned enough money, take them to the store to buy it! They will appreciate their things so much more if they do a little work for it!
What do we use money for?
Another important step in teaching our children about money is talking to them about how it is used. Don’t be afraid to help them understand all the different things that money is used on…
- The home we live in
- The car that we ride in
- The clothes on our backs
- The shoes on our feet
- The food and dishes on the table
- The books that we read
- The toys that we play with
- The television that we watch
- The water and electricity we use
- The internet that we use
…and the list could go on. Everything costs money! However, keep it positive when reviewing spending… you don’t want to ingrain a “scarcity mindset” in your child. It will carry with them through their adult life.
A fun way to incorporate teaching children more about what money is used for is to make it into a game.
ACTIVITY: When you are at home or go on an outing, ask them to name some items they think cost money and, depending on the age, you can even have them guess how much. You may find it fascinating how much they pick up in a short period of time.
Needs vs. Wants
You may have experienced or witnessed a severe tantrum of a child at the store because they were told that they could not get something that they desperately wanted. Helping children understand needs versus wants can be empowering.
Needs include things like:
- Medical care; and
- Television; and
- Video games.
Explain that if we chose to spend all of our money on wants (like buying toys) before we pay for needs, then we may not have money to pay for food, shelter or other necessities.
It’s important for them to know that we must prioritize the things we need before considering the things we want. And of course as parents we will buy our children toys when we can, but if we teach them how they can “work” and earn their own money, instead of whining at the store for the toy they want, they can just tell you, “Hey mom, I’m going to save up for this.” That way they can understand that all good things take work and we cannot have all things right away.
Why is it important to save?
It can be difficult for a young child to understand the importance of saving. We can help them by explaining the different reasons why we save. Here are some examples of reasons why we save:
- Unforeseen circumstances
- Future purchases of wants or needs
- College; and
Using visuals is a helpful way to teach money management for kids. If your child has a specific item they are hoping to purchase, help them come up with a plan. It may be helpful to create a mini budget or chart so that they can visually see where they are at and how long it will take to reach their savings goal.
Another great practice is helping them create long and short-term goals. And don’t over-estimate the power of a piggy bank! Buy your child a little piggy bank and let them save up all the change they can scrounge together! Change can add up REAL FAST!
When my kids start driving, I open them up a Capital One 360 Kids Checking account. The purpose of this is two-fold…
- I can easily put money on their card if I need them to run to the store and grab something for me (#teendriverperks)
- I teach them to (after they pay tithing… see more on that below) save half of their income for long-term and the rest they can use for short-term saving/spending money. As my two oldest kids have been applying to colleges and getting their tuition and housing set up, they’ve realized how EXPENSIVE it is! I’m proud of them for working hard to get scholarships and pay their way through school and avoid student loans like the plague!
Why is it important to give?
Ever since I can remember, I was taught the importance of paying tithing. Dave Ramsey really cemented the significance of this principle in my mind when I went to his Legacy Journey course. He reminded me that all the money I earn comes from opportunities given to me by God and therefore it is God’s money and I am the steward. God wants us to give to others and serve our fellow men.
Now, even if you don’t believe in God, I am sure you can see how it changes a persons’ attitude toward money when they choose to use it to help others. This can be by donating to any charitable organization or finding ways to help those in need. Smart people know that when you give a charitable donation you also can claim a tax right off!
So, find a way that you can give and allow your kids to come along and help. Maybe let them work for a little cash and go buy some cans to donate to the local food bank. I promise you they won’t forget how great they felt as they helped someone in need.
Abundance & Gratitude Mindset
Something that I’ve learned recently as an adult, is that it’s better to have a mindset of abundance rather than scarcity when it comes to money. Your mindset will be picked up by your kids!
So, when you talk about money, don’t act like there is never enough. Don’t be negative about money. Rather than saying “we don’t have money for that”, say “this isn’t in the budget, but would you like to find a way to earn enough money and purchase it yourself?”
Letting your kids actually physically touch and feel money is a great way to teach them about it! Have them memorize WHO is on each bill. If you don’t know this yourself, then it’s time to learn! Money is a currency that is a big part of our lives. Having a good relationship with it will allow more of it to flow through your life. Teach your children about each person on every bill:
- The dollar bill (Washington)
- The two dollar bill (Jefferson)
- The five (Lincoln)
- The ten (Hamilton)
- The twenty (Jackson)
- The fifty (Grant); and
- The hundred (Franklin)!
Money is nothing to be feared or feel like there is never enough (there goes that scarcity mindset again). Teach them to be grateful for what they have (and you should be grateful for what you have too). It’s the law of abundance… if you don’t appreciate what you already have, you won’t be getting more of it! 🙂
How do you teach your kids about money?? Let us know!
Books I Recommend:
- Smart Money Smart Kids by Dave Ramsey and his daughter Rachel Cruze
- Raising Financially Fit Kids by Joline Godfrey
- Piggy Bank to Paychecks: Helping Kids Understand the Value of a Dollar by Angie Mohr
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Great article! I’ve the teachable moments about money. Amazing how many kiddos think it is an unlimited supply when we use our cards to pay. Children need to see you use real money to understand the values of denominations.
My youngest is almost 3 and I’m sure we could start doing some things to teach her about the value of money!
I enjoy reading Dave Ramsey’s and Rachel Cruze’s books and advice! My two year old knows that daddy goes to work. I’ve told him that daddy works hard so we can buy diapers (etc.) for him.
Wise instructions and money sense would be very useful in our family. All I know is that “credit cards reek”. It was a long time ago that I took a Dave Ramsey class, but that saying is etched in my brain.
Dave Ramsey is awesome. I have read many of his books and would love to have Smart Money Smart Kids to be able to teach my kids. I have a 10 and a 14 year old that thinks money grows on trees.
We have a 6 and 7 year old. Our 6 year old is all about saving, our 7 year old, not so much! We need advise on how to change this! Love Dave Ramsey!
What a good read!! My husband an I did not do to well with our older two kids on teaching about money, saving an giving! They were rested in a two home with two very different ways of doing things! Now, our older two never have money an a Ron of debit!
We have started much younger with our two boys! They both are in school, sports, scouts, church, 4-h an both have part time jobs!
They are 18 senior in high school an 14 8th in middle school! The oldest has to split his pay check between saving and checking. He also pays cash for everything! He hates using his debit card! The youngest gets tip at his job so his entire paycheck has to go into savings!! His tip money is his to spend for movies, skiing or a burger after practice. The tithing it just getting started this past year an they have been good stewards.
The boys do not have to pay living expenses, but do have chores around the house still!
The best thing that we can teach our kids is to save, giving an spend wisely! This read a breath of fresh air an I have taking a few of Dave Ramsey’s class would love to read the book he an his daughter did together.
Happy new year!
I have 2 teenage girls I would love to teach good money habits to.