“Financial literacy,” you say? Then you think, “but my child is only five!” Truth be told it is never too early to start demonstrating and teaching your children how to manage their money. Unfortunately, I am pretty sure if you were making a list of important things to teach your children, financial literacy wouldn’t make the list. You would more likely think of things like potty training, manners, learning to read, math skills, etc. However, money sense is arguably one of the most important skills you can teach them to aid in their future success.
The Right Time To Start
As soon as your child starts asking for things, the first lesson they must learn is that those things cost money, and money has value. When you spend that money, it is forever gone. Would you be surprised by the fact that most children understand by age three that coins and bills can be exchanged for things, like say that piece of candy or toy new toy that they want? Then by the age of six or seven they can even better grasp the money concepts of earning, and saving to go along with that spending instinct!
Teaching children the skills to be money smart is a process that happens over time. Starting at an early age with simpler concepts and working up to the more complex ones as their age and cognitive ability will allow. The skills lies in learning (or teaching) the value of saving, and of spending conscientiously and understanding the difference between wants- the just for fun stuff, and needs- the necessary expenditures.
A good way to help your child learn how to handle money on their own is by giving them an allowance. Somewhere around the ages of 5-7 have a conversation with your children concerning money, include your own values and beliefs concerning money. Set up a fixed allowance amount and plan with your child how that money will be allocated. For example, a common measure is $1 per year of age, thus $7 a week for a 7 year old, $14 a week for a 14 year old.
You can then discuss managing the money by designating to certain things. For example, 40% toward spending, 40% toward short-term saving (new video game, bike, toy), and 20% toward long-term savings (when older: cell phone & bill, car, college). You could also lessen one or more of these and add in something like a percentage for charity or a giving back project of some kind. Lastly be sure to define what they are expected to pay/save for. You pay the mortgage, electric, groceries etc, but they pay for special snacks they want, toys, etc.
In this post I am referring to younger children. If you would like tips and ideas for the teenage/high school years you can check out my article called Money Management for Teens.
Finding Opportunities to Teach
Taking your children to the grocery store and involving them in looking at the prices and talking what is more or less value for your money is a great way to get them involved and more aware of the cost of things. For instance if your five year old wants a candy bar they can find it and check the price. Do they have enough money? How much do they need to save to get it? Or how much money will they have left after buying it.
How about the bank? Around the age of 10 you can take them in to set up their own savings account (check with your local branch concerning their guidelines). Then maybe once a month you can take your child to deposit the money from their weekly allowance that was set aside for savings and allow them to keep the ledger for the account.
It is important to allow your children to spend their money as they choose, within your guidelines. They need the opportunity to make mistakes and learn from them. When my oldest was 9 or 10 she just had to have this oinking pig that was all the rage at the time. I warned her about its lack of usefulness and how she might feel about spending $12 for something she may not play with very long. Wouldn’t you know that a month later it was heading to the garage sale pile with high hopes of recouping some of the money spent on it!
Above all, talk to your kids about money. They see us handling and using money every day but if we don’t talk to them about the what, how, and why, then they will miss out on many wonderful learning opportunities.
Money Sense Resources for Use With Young Kids
Jump$tart Coalition is a national coalition of organizations dedicated to improving the financial literacy of pre-kindergarten through college-age youth by providing advocacy, research, standards and educational resources. Jump$tart strives to prepare youth for life-long successful financial decision-making.
Doughmain seeks to make life easier with a family organizer packed with tools for your busy lives. Recognizing the central role of money – and money smarts – in creating a better future, they also empower kids to become better educated and more confident about money management and financial topics.
The Great Piggy Bank Adventure an online game where kids can learn the importance of wise financial planning—while having fun! Designed for kids, this board game is also a good way to get the whole family together for some playful lessons in financial management.
Planet Orange is an exciting new planet in the deepest reaches of outer space that helps kids, from 1st to 6th grade, learn about earning, spending, saving and investing.
For me, For you, For later ~ First Steps to Spending, Sharing, and Saving is presented by Sesame Street and is a bilingual multimedia program created to help families share experiences in developing financial basics that will impact their children now and in the future.
Kid$Wealth is a program designed by leading educators looking for a better way to teach children about money, the Kids Wealth program is designed to structure the formative years (4-12) when children can develop proper savings habits.
Board Games such as The Game of Life, Pay Day, Monopoly, and a favorite for the younger ones in our house, The Allowance® Game are great ways for your family to be together, have fun and learn about money all at the same time.
Heidi lives in upstate New York where the winters are long & cold, but where she truly appreciates the lack of extreme weather such as tsunamis and hurricanes! Her house is filled up with her loving husband of 15 years, 3 busy children, & 2 dogs (Muffin & Oscar). Homeschooling started out as a trial run with a child beginning 2nd grade, & almost 8 years later has become a lifestyle which brings great joy. You can often find her behind her camera, or working something out in Photoshop. Since beginning this homeschool journey she is learning to knit, crochet, & even to quilt! Her love of reading was passed on to her children & can be seen in the numerous book reviews she writes on her blog.Heidi.