How to Teach Kids About Money and Finances

Concerned about your child’s financial future? You’re not alone—59% of parents believe their children lack the fundamental knowledge to manage their finances. But no matter your child’s age (and your financial situation), now is the best time to begin teaching them about money.

Not sure where to begin? From toddlers to teenagers, here are some age-appropriate ways to teach your child money skills.

Toddlers 

You may think your toddler is too young to learn about money. But this isn’t the case for two reasons. First, this is the age kids learn to count. Second, between the ages of three and five is when they begin to understand the difference between using something now versus saving it for later. 

Set up a pretend store 

What toddler doesn’t love to play store? Use this classic game as an opportunity to teach them about money. Help them set up a store, like a grocery store, and use fake money to practice exchanging different items.

This will help familiarize your child with exchanging money for items.

Read books about money 

Lots of toddlers love to read. So, why not read books about money? There are many age-appropriate books for toddlers, like: 

• One Cent, Two Cent, Old Cent, New Cent: All About Money by Bonnie Worth 
• Little Critter: Just Saving My Money by Mercer Mayer 
• Bunny Money by Rosemary Wells 
• The Coin Counting Book by Rozanne Lanczak Williams 

Your local bookstore may have other options, too! 

Practice identifying coins and bills 

As your toddler begins to learn different words, you can teach them dollar, penny, or quarter. Give them some coins and bills to play with in your presence. Ask them what each one is and how much each one is worth.  

Please note: Coins are a choking hazard. Please do not leave your toddler unattended with coins. 

Preschoolers and kindergartners 

Preschoolers and kindergarteners begin to develop more advanced mathematical skills compared to toddlers. How to teach kids about money is even easier as their skills develop in this stage. 

Use a clear container for their savings 

While there are lots of cool piggy banks out there, the best kind for teaching your kids about money is a clear container. Opting for a see-through container helps your child visualize the money that they have.  

Plus, you can emphasize that the more they save the more their money grows. You can even make little lines in the container so they can keep track of how far they’ve come.  

Also, encourage them to count their piggy bank savings regularly. This is also a good time to start talking to them about setting saving goals. Have them do the math on how much they’ve saved, and how much they want to save to understand how far they have to go to reach their goal. 

Talk to your kids about money  

Talking to your kids about your spending habits can be crucial to developing a healthy relationship with money—even if it’s uncomfortable at first. Keep in mind that if they see you spending in excess or fighting with your partner about money, they could pick up those money habits, too.  

Instead, try to tell them about your savings goals. Share progress updates with them and tell them when you reach your goal.  

Consider paying for items with cash to solidify the concept of exchanging money. This will be more concrete for your child than tapping your credit card.  

Let them buy things with their money  

Who hasn’t walked through a store and had their kid tell them they want something? Rather than buying it for them or saying no, encourage them to bring their own money the next time you come to the store.  

If they remember the item and bring their money, they can practice exchanging their money for an item. They’ll also experience what it feels like to have less money the next time they count their savings.  

Often, kids will forget about what they wanted within a couple of hours. By making them wait until they have their own money to make a purchase, you can help them avoid impulse buying.  

Elementary students and middle schoolers 

Once your child reaches elementary and middle school, they will better understand how to spend, save, and give—even if you haven’t taught them about money. This is an ideal time to build your child’s confidence regarding age-appropriate financial tasks.  

Here are some ways to develop money skills for kids. 

Let them make choices with their money 

You can teach your kid how to make decisions with their money through opportunity cost: the concept that spending money on one item means it’s no longer available for something else. This is a great lesson to teach your children in elementary school.  

If your child has a long list of things they want, help them add up what they have and explain the costs of each item and what they can get. Encourage them to wait a day or two before making an impulse buy so they can weigh the pros and cons of each purchase.  

Then, let them buy the item they want. 

The hardest part about teaching your child about opportunity cost is that you will have to support them through bad purchasing decisions. You may know that your child will regret purchasing a cheap toy because it will break. Yet, this lesson is much more likely to stick with them than a lecture.  

Buying a cheap toy will teach them to spend their money on higher-quality items. 

Pay them for the work they do around the house  

Allowances are generous and great for toddlers. Once your child reaches preschool and kindergarten, you may want to consider switching to paying them for the things they do around the house.  

All their chores don’t need to be paid. You may decide that things like keeping their rooms clean, making their beds, or picking up after dinner aren’t paid opportunities. But, try and find some chores that you’d be willing to pay your child for like:  

• Wiping down the bathroom 
• Sweeping 
• Mopping 
• Walking the dog 
• Organizing the garage 

This teaches your child that money is earned, not given. Which is an important lesson given there’s little to no free cash when they grow up.  

Teach them about interest  

Remember that clear container you used to show them how money grows? Hold onto that piggy bank into their tween years and use it to explain how interest works. You can do this by giving your kid small interest payments in one of two ways: 

1. Pay a predetermined amount each week (or month) while the piggy bank has money. For instance, “If your piggy bank has money, I’ll give you an extra $5 per month.”  

2. Pay interest on the piggy bank amount, like a real-world savings account. For instance, “I’ll pay you 5% in interest based on your balance at the end of the month.” 

This emphasizes that not spending all their money can cause it to grow if it’s in the right place. This lesson will be helpful when they get older and need to open savings and investment accounts.  

Instruct them on giving 

Emphasizing the importance of charitable giving during elementary and middle school can have a lasting impact. If they love whales, help them pick a marine nonprofit to donate some of their money.  

Or, if you have a child who wants a pet, have them invest their time and money in a local animal shelter. Let them know that their time and money aren’t an exact exchange for a pet immediately, but rather consistent donations will help you see that they’re ready for the responsibilities of a pet. 

You can also increase their excitement by matching what they donate.  

Teenagers 

Teenagers have a strong understanding of money and math. According to Walden University, 30% of high school students are employed or have jobs for at least part of the school year. This means that your child likely has more money and responsibilities than ever.  

At this stage, it’s also important to teach them about preventing identity theft. As they begin growing their online presence, they need to ensure that they keep their personal information safe—especially their money. 

Here’s how to teach kids about money during their teenage years.  

Open a bank account 

Given that your child has more money than ever, either from a part-time job or helping you around the house, high school is a good time to open a checking account. A bank account can help teach them about keeping a positive balance and not overspending.  

It may be a good idea to set up a weekly day that you help your teen check their accounts.  

Remember that clear jar? That piggy bank has earned a retirement. Instead of funding their interest, teach them how to evaluate interest rates and set up a savings account. Encourage them to think about expensive items coming up in their life, like a car or college, and make savings goals.  

Set up a budget for your teenager 

If your teen is going to be spending a lot of their time on their phone, they might as well have some helpful apps that teach them about financial literacy. Download a budgeting app or teach them the importance of creating a budget. 

A budget is a plan for their money. Help them allocate funds for gas, eating out, their car insurance, friend’s birthday presents, and college savings. Budgeting can also help them determine what impulse buys are worth it and what aren’t. Do they really want new shoes? Or, do they want a car when they turn 16?  

Some budgeting and banking apps you could encourage your teenager to check out include: 

• Acorns 
• BusyKid 
• You Need a Budget (YNAB) 
• GoHenry 
• Goodbudget 

If you’re comfortable, talk with them about your finances 

You don’t have to tell your kids everything about your financial situation. But, if there are pieces you’re comfortable sharing, consider having a conversation with them. 

If you invest in the stock market, let them pick out a couple of stocks with you and track their progress over time.  

If you’re still paying off student loans, show them your balance and discuss how you’re making payments and your plan for paying off the debt. 

If you own your house, walk them through your mortgage and payments and explain how your home has appreciated in value since you bought it. 

If you’re making a big purchase, such as a car, home, solar panels, a new fence, or a boat, include your teen in the conversations about the transaction. When it’s their turn to make a big investment, these experiences will make the purchase less intimidating.  

Help them understand student loans 

While your teen may be itching to go off to college tomorrow, they first have to figure out how they’ll pay for it. The average college student borrows over $30,000 for their bachelor’s degree.  

Explain interest rates and how the money they originally borrowed could be much lower than what they must pay back. This could help your child avoid excess debt later in life.  

Discuss options to avoid student loans, such as attending community college (or in-state universities), applying for grants and scholarships, or working part-time.  

There are many options for paying for college—make sure your child is aware of all of them. 

Prepare them for a credit card 

The day your child turns 18, credit card companies can advertise to them. If you don’t teach your child about credit cards, they may see them as free money. It’s important to explain to your teen what credit cards are, how to use them and when to avoid them.  

After all, a credit card is a loan that comes at a cost. So, healthy credit card management is key. 

But it doesn’t need to be all scary. You can teach your child about credit scores and building credit history. Good credit could help them buy a car, a home, or take out loans in the future to start a business.  

Have a conversation about cryptocurrency 

56% of Gen Zs aged 18 to 25 own some type of investment. Of these, 19% are currently invested in cryptocurrency or non-fungible tokens (NFTs) only.  

You don’t have to teach them to avoid crypto if they seem interested. Rather, use cryptocurrency as an example of how unpredictable some investments can be and why it’s important to diversify. In turn, this could help them avoid peer-pressured decisions down the road.  

The best day to teach your kid about money is today  

While it’s best to start young, it’s never too late to teach children money skills. No matter which strategies you use, the goal is to help your kid develop the self-confidence needed to make smart financial decisions independently. 

They will mess up at times. No one can avoid making money mistakes their whole life; they’re part of the learning process. But by being supportive as they learn, you’ll set your kid up for a successful financial future. 

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