Teaching Your Young Child About Money

As I was growing up, my parents were very good at managing their money -- even down to the penny. And what they taught me about it has helped me as an adult with my own children. My two kids are in college now, and by advising them earlier on they’re now able to practice their saving traits. So, while it is important to teach financial concepts at all stages of a child’s development, starting when they are young, makes it easier for them to become money wise.

The best part is you can do it in everyday life, which can make it fun. And kids love to have fun with their parents! First things first, children need to understand the what, why and how of money. That is, 1) what is it, 2) why do they need it and 3) how do they get it?

Step #1: Making money add up

Very young children have no concept of what money is, so this is step #1. They also need to learn how to add and subtract, so putting the two concepts together makes a lot of sense, or should I say “cents?”. Coins and the numbers they represent can begin to make them comfortable with concepts of adding, subtracting and saving.

Giving them a bank to hold your spare change is a great first step. This can be the proverbial piggy bank or something more interesting to them. There are no shortages of ideas here -- even if it’s just a mason jar!

Then, get them used to adding and subtracting the denominations of coins. Sticking just with pennies at first for the youngest kids is best, but as they get older nickels, dimes and quarters can and should be introduced. From here, it is a small step to introduce dollar bills (10 dimes = 1 dollar, etc).

Once they connect coins and paper money in terms of mathematical value, you are ready for the next step.

Step #2: Take them shopping

I used the grocery store as a place to learn about monetary value, particularly the items they like to eat most. This is an easy connection to make as to why kids need money.

The product prices are displayed on the shelf, with many options to choose from. Talk to your child as you make the buying decision and tell them why you selected the particular product over the competing options. The concept of discounted sale prices is another great concept to get them to recognize, which leads them to understand what monetary value is all about.

Of course, they get to see you in action at checkout, when everything is added up and you pay for your purchases. The grocery stores and other retailers are typically very good at telling you how much you saved at checkout. Share this with your child as well. This is another key lesson to instill, as even as your kids need to eat and make other purchases, they need to understand they can still save money by spending wisely.

Step #3: Give your child a job

Doing chores and succeeding in school are two easy jobs where kids can earn money. At first, they may need to connect completing a task with immediate payment, like picking up their toys earns them a dime or quarter. But this is your opportunity to make a big deal of putting that coin into their bank, showing them that with every completed task, they have earned money.

You’ll begin to know your lessons are hitting home with them when they start negotiating for higher compensation. Actually, that is something to look forward to, as it will mark another important step in their financial literacy education.

For more ideas, there are a lot of free financial literacy exercises for kids available on the Internet. Some of my favorites are found at Kirby Kangaroo.