Updated: Feb 4, 2019
It seems parents of today are open to talking about everything with their kids – except money. Did you know that researchers at the University of Wisconsin-Madison report that by the age of three, many children are able to grasp economic ideas such as value and exchange? Take this opportunity to educate your kids early about money and help them develop successful money management habits to become financially responsible adults. Teaching kids about money is actually quite easy. It's all about turning everyday activities into learning opportunities. Trips to the bank, store, or the ATM machine, for instance, can be a perfect opening for a discussion about your values and how you use money. When children are very young, you can work money concepts into your child's imaginary games, like playing pretend store or restaurant.
1. Use a clear piggy bank to save.
The piggy bank is a great idea, but it doesn’t give kids a visual. When you use a clear jar, they see the money growing. Yesterday, they had five dimes. Today, they have a dollar bill, five dimes, and a quarter! You can even have several piggy banks: one for saving, one for spending, and another for donating. Another idea is to have a jar for a family activity everyone saves up for like a weekend away or a trip to the theater.
2. Set an example.
A study by the University of Cambridge found that money habits in children are formed by the time they’re 7 years old. And they notice everything. If you buy something on impulse or something you don't really need or didn't intend to get, every time you go to a store, they’ll eventually notice, and repeat the same behavior. Teach your child from a young age what wants and needs are. You can do this by walking up and down the aisles of a store and deciding whether something is a want or a need. This concept can truly be the foundation of being wise financially. Set a healthy example for them and they’ll be much more likely to follow it when they get older.
3. Don't be afraid to say 'No.'
Parents want happy kids, but giving into them all the time will NOT produce happy kids. Chasing after the next new thing will eventually cause a sense of deficiency that can never be fully satisfied. We rob them of the opportunity to find solutions in a different way. But kids who learn from denial realize at an early age that they won’t always have the perfect tool for every job and will learn to adapt what they already have. They might not know something, have something, or be something. But that’s not the end of pursuing goals — it’s the beginning of activating their resourcefulness to find another way. Remember, young children are naturally resourceful.
4. Show them that stuff costs money.
Do more than just say, “We can't buy that toy; it costs too much.” Help them grab a few dollars out of their piggy bank, take it with them to the store, and physically hand the money to the cashier. Studies have shown that it's more “painful” to part with cash than it is to use a card, so if your child thinks (s)he really wants something, it’s a valuable way to teach your child what it’s like to buy something. This simple action of handing money over to a cashier has more impact than discussing with him why (s)he doesn't need yet another toy. And don't forget to talk about debit cards! Some kids think it's used to avoid handing over cash. Explain that it is the same as using cash; you're just spending cash in a different way.
Ages 2 to 4
A 2- or 3-year-old faced with a choice between a penny, dime, and nickel will almost always choose the nickel because of its size. But very young children will have a hard time understanding the value of money, but they can begin to learn the names of coins. One way to do this is to trace around the outside of various coins and color them in. Then invite your child to match the coin to the image while discussing each one's name. (Note: Toddlers may try to swallow coins, so always provide close supervision.)
Ages 4 to 6
Young kids love to play store, but an imaginary shop in the living room is more than just a fun way for your child to exercise his imagination. By exchanging play money for goods, your child begins to understand the basics of commerce. You can use everyday household items, such as cereal boxes, small books, sponges, or small items of clothing as store items. Together, make pretend money and shop till you drop!