Guide to Teaching Your Children about Money by Age

Teaching children financial skills does not need to be a daunting task. Taking everyday opportunities and creating teaching moments will help you share values and financial skills to children of all ages. Research has shown that children as young as 3 can understand basic concepts around money. This guide will help you create a plan for your family.

Preschool Children from 3 to 5

Play Money. Preschool children can begin with counting coins and recognizing the names of each coin. At this age pretend is a powerful teaching tool. They can pretend to go shopping or run a café. Most major cities have children’s museums filled with activities that are entertaining and educational for pre-school children. At home pretend to run a restaurant. They can take turns being the patron and the waiter to practice both serving and paying for dinner. These activities teach about money transactions and that things cost money.

Delayed Gratification has become more difficult to teach with so many things instantaneously achieved. Teaching patience will enable them to recognize that not everything happens immediately. One way to do this is to reward them for waiting. For example, they can have one cookie now or two cookies in 5 minutes. They will learn that waiting offers the best choice.

Making Decisions. The more decisions children make, the better they get. Do they want to wear the red shirt or the blue one? Giving them two or three items to choose from offers control of what happens and builds confidence as the decisions become more meaningful.

Elementary School Children from 6 to 10

Money Choices. Giving children the opportunity to earn money or paying an allowance provides real world application for financial decisions. Divide money they receive it into three jars or piggy banks. One for spending, saving and giving. Children quickly learn they can save up for larger things they want to buy. Donating money gives them a sense that the world is bigger than themselves and helps them appreciate what they have.  If a child wants an expensive item they can get creative about ways to earn extra money. For larger items some parents provide matching funds to keep the goal within a time frame the child can manage.

Teach Value. Talk about why you make buying decisions. Take them to the grocery store and pick two or three items to discuss why you chose one brand over another. Then on the next trip have them choose items based on the same decision making process. Maybe try a more expensive brand one week and a generic brand the next and talk about the differences and which has more value.

Start a Business. Children can also learn to manage money and set financial goals by starting a small business. This might mean making a craft to sell at a fair or the traditional lemonade stand. Children can learn to run a business along with what to do with the money. Online games are also available which provide the opportunity to run a virtual business with similar teaching principles.

Wants versus needs. Children see an ad on TV or a child at school who has a toy and they want it. Teaching them the difference between wants and needs to help them resist the need to have what “everyone else” seems to have. It also helps them distinguish between things they really need as opposed to what looks good at the moment.

Open a Savings Account. A trip to the bank can be a real adventure. This is only effective if they regularly put money into the account. It can sometimes be hard for children to grasp the concept of money they cannot see. A bank account gets them in the practice of setting money aside, not just for more spending, but as a true savings account.

Middle School Children from 11 to 14

Short and Long Term Goals. Middle school children have the ability to do real goal setting. Things they want are often more expensive and looking at immediate spending, short term goals like a larger item they want, and long term goals like college, develop financial maturity.

Tradeoffs and Opportunity Costs. Money spent immediately will reduce the amount available for other meaningful items. At this age children can help make family decisions. For example, when you go on vacation present them with a budget and a list of activities. They can get real world practice choosing what activities have more value based on a given budget.

Advertising Awareness. Billions are spent marketing pre-teens and teens. Teaching your children to analyze marketing techniques will help them resist the lure of ads targeting pre-teens and teens. Advertising triggers an emotional response. Make it a game to find the emotional triggers. Activating the analytical side of the brain will help distance themselves from the emotional trigger.

High School Children from 15 to 18

High school students are old enough to understand financial decisions, giving them a lot to learn in a few short years. Teenagers are often working full time jobs in the summer and have regular earnings year around. A few essential concepts for these last few years include:

Salary versus Expenses. What jobs pay and what skills are required to qualify for the jobs that interest them. This will help them choose a college major based on a field they want to work in. Become aware of the cost of living in different cities such as rent, utilities and other essentials. How does the salary in their chosen field compare to the lifestyle they want to achieve.

Investing versus Savings. It may still be a few years before they can regularly invest money, however,  they need a basic understanding that savings is for short term expenses that cover costs like car maintenance, unexpected expenses or financial goals. Investing has a longer horizon which opens the door to different opportunities. Tracking stocks for products they use is a good way to see how investing works.

Compound interest. Interest is either working for you or against you. Accumulating debt in the form of credit cards, car loans, or student loans require interest to be paid. Invested money allows interest to be earned helping your money grow.

Banking and Taxes. The first job and first paycheck provides the chance to talk about taxes, withholdings and why taxes are necessary. Opening a checking account will teach them to balance accounts, live within their means and how to use a debit card responsibly.

Credit, Debt and Maintaining a Budget. Creating and monitoring a budget gives them control over where money is spent based on needs and income. If they are headed to college, student loans may make debt a reality. The better they understand the long term consequences of debt and how payments or lack of payments impact their credit, the better off they will be financially.

Understanding Identity Theft. As they begin managing money, it is critical young adults understand how to secure financial information and recognize scams.

Teaching your children money concepts over the course of their lifetime will give them the tools they need for financial success.

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