Teaching Money Management & Financial Literacy to Children
Financial literacy is the ability to understand and use financial skills such as money management, budgeting, and investing. This includes borrowing money and paying off debt, creating and sticking to a budget, and knowing the differences between financial tools and options for investing, taxes, and similar concepts.
These skills are critical as an adult, but even basic financial skills aren’t typically taught in classrooms. This leads to inadequate household and retirement savings and high levels of credit card, student loan, and other debt. In fact, the average American has more than $5,000 in credit card debt alone.
While these seem like very adult topics, experts suggest starting to talk to children about money management early in order to instill knowledge and skills needed when they get older. But how do you teach in a way they can understand and maintain? Read on to learn about the top financial literacy skills to teach children and tips for how to do so.
Why Is Teaching Financial Literacy to Children Important?
The average American credit card debt, student loans, and other debt totals more than $90,000, while the median retirement savings for those 65 and older is just around $164,000. Too much debt and not enough savings can impact an individual throughout their life in a number of ways, and can make spending, saving, and retiring more difficult.
Learning financial literally skills at a young age is proven to help young adults make better financial decisions and begets better financial behavior. Some experts even suggest starting to teach children about money as early as three to five years old. The majority of children learn money management skills at home, so parents must be proactive about teaching and modeling responsible behaviors.
They can also take advantage of before and after school programs that help teach and enforce positive behaviors.
Top Financial Literacy Skills to Teach Children
As you start teaching your child financial literacy skills, there are a few basic concepts to reinforce:
What money looks like
Where money comes from
What money is for, including the difference between “needs” vs. “wants”
How to use money wisely, including budgeting, saving, and investing
How to get the most value for your money
As young as age three through age six, you can focus on teaching money recognition, such as what the different dollars and coins are. You can also start sharing the value of those coins. Children at this age can start to understand simple addition, and how more money can buy more things. Additionally, you can start to explain what immediate gratification is and how money plays a role in that.
As your child ages through elementary school, you can introduce the concept of delayed gratification, and how if they wait to purchase something and save their money for longer, they can get something better. You can also start showing how to work for money, and at this time, children can also understand the importance of saving your earnings.
In their early teens, you can start to introduce the importance of budgeting and saving. Then, in the mid- and late-teens, you can move their savings to a checking and/or savings account and introduce a debit card. They can also understand how credit cards work.
How To Teach Money Management Skills to Children
Start with showing your child physical currency, as this makes the concept tangible. Physical money can be dollars and coins, while digital money can be credit and debit cards. Put coins in a piggy bank, designate envelopes for certain purchases, or introduce similar concepts. As your child ages, allow them to hand physical money to cashiers or bank tellers so they understand the concept of giving money away.
Savings
Next, teach the importance of savings. This can happen around age nine or ten. Share what a savings account is and why they are important. You can also introduce an allowance at this time, which can help enforce the importance of saving and spending responsibly. Have a piggy bank or savings account for your child where they can put their savings.
Goal Setting
Help your child set a goal, either small or large, and estimate how much the goal costs to determine how much to set aside each week/month to reach that goal. Having an allowance also gives children the opportunity to manage their own money, which can be a great learning opportunity with fewer consequences.
This is a great time to discuss the difference between needs and wants and teach children how to prioritize. Once they have money they can spend, they’ll need help understanding how they can vs. how they should spend it.
You can also teach the importance of comparing options at this time, such as:
How to look at sales flies or coupons and how that can save money.
How to compare brands so their money buys more (brand vs. off-brand)
Searching different stores and/or online to find the best place to buy an item
Earning Money
As your child starts to earn money, reinforce that hard work can pay off, literally. Then, children understand if they want something, they must buy it, and it’s important to earn and save enough to do so. Even children who aren’t old enough to get a traditional job can still earn money, and it can be fun. For example, they can try:
Babysitting
Dog sitting/walking dogs
Yard work/shoveling snow
House sitting
Etc.
Budgeting
Another activity you can try is including children in the process of making a family budget. Start by listing out all income, and ask the child to come up with a list of expenses (with your help) including things like rent/mortgage, food, insurance, gas, car payments, etc. You can use past bank or credit card statements for help.
Then, have the child determine what are “needs” vs. “wants.” Help them decide where the income must go and what is remaining for those wants, and reinforce the importance of prioritizing those wants.
The most important thing is to consistently model good financial behavior. When you compare prices, pass up on a “want” because it’s not in the budget, put money into savings, and even show the importance of giving such as to charity, your children will learn first-hand the importance of money management and have model for better financial behavior.
Enroll Your Child in a Before and After Care Program in Maryland
Many critical life skills are taught outside the classroom, including those related to earning and understanding money. Contact Caliday to connect your child with a wealth of learning resources and invest in their social and cognitive development. We offer expert homework help, social development resources, and much more. Programs are lead by vetted, qualified before and after school educators. Call 410.886.7863 to learn more or sign your child up today.
