My son is five years old, and at this point in his life, he wants everything. When we go to the store, he wants at least one thing from every aisle. This includes the grocery store — even boring food items are exciting when encased in colorful packaging. Even after years of hearing the word “no” a whole lot, the little guy still seems a bit confused that he doesn’t get everything he wants.
The thing is, five-year-olds don’t exactly have a solid concept that things cost money. However, my son has started to understand this a little bit just in the last several months. Now that he is in kindergarten and more able to logically puzzle out cause and effect, my husband and I have started talking to him about money, so that he’ll have a good base of financial sense and understanding as he grows up.
For the other parents out there listening to their kids asking for everything and not understanding why their every whim isn’t fulfilled, I’ve compiled some pointers for how to talk to your kids about money. It may not be the most exciting series of conversations you’ll ever have with your children, but it will be worth it. After all, the earlier we start preparing kids for adult life, the more time they’ll have to practice and become accustomed to it.
What to do for younger kids
For little kids, best to keep financial explanations simple and practical. Here are a few ways to get the conversation started:
Get them a piggy bank
In my experience, little kids absolutely love putting coins into a container and jingling them around. One way to introduce the concept of saving money to young children is to get them a piggy bank. Make sure it’s non-breakable: those old-fashioned ceramic ones just won’t do. Also, don’t give coins to kids younger than age three, as they may choke. Even if they’re older than three, you want to wait until they’re out of that everything-goes-in-their-mouth phase before introducing coins.
Visualize money in terms of items
Dollar amounts are a bit too advanced for most young children to comprehend. One way you could talk about how much things cost is to use comparisons. One example might be, “Our couch cost lots of money… as much money as more than one hundred apples!” Then, count out a dollar or so in change, to demonstrate how much an apple costs. Imagine how many coins would be needed to pay for the couch!
Hone their counting skills
If your child is going to understand money, they’re going to have to get good at numbers! Practicing counting with your child. Setting out various items on a table and having your child count how many there are of each item is a great way to learn.
Play the toy store game
Children five and up may be ready for the “toy store game.” Set up a pretend toy store using your child’s toys. Let your child choose how much each toy costs, and put a price tag on it. Discuss the concept of price with your child. Your child can practice buying the toys from you using Monopoly money.
What to do for older kids
Older children are ready for more complex lessons about money. Here are a few of them to try:
Consider an allowance
Some parents may wish to give their older children an allowance, so that they can save their own money for things that they want to purchase. Others may wish to give their kids a few dollars to do certain chores around the house. Whatever system works for you and your family, have a meeting with your kids and lay out the rules, so that everyone knows what is and is not negotiable.
Set up a savings account for them
Consider setting up a bank account for your child at your local bank. Have this be separate from any savings account you have for them, such as a college savings account. Let this account be solely for them to deposit savings into. Allow them to deposit as much as they want of their money, as often as they want. Or, if you prefer, encourage them to deposit a fixed amount on a set schedule, so they get used to saving.
Show your child how to make a simple budget. Explain the concept (income and expenses, assets and liabilities) and add details depending on how well your child understands. Draw up a simple example budget. Encourage your child to make a budget for the allotment of their allowance (if they have one), so they’ll know how much they are spending and saving.
What to do for teenagers
This is a great time to start preparing them for adulthood, and the financial lessons that go along with it.
Introduce them to taxes
If they have a job, help them with their taxes, and teach them how to do their own (if it’s simple). You may also consider letting your teen tag along to your tax appointment if you file with a consultant or attorney.
Recommend accounting and finance classes
These classes can help with money smarts a great deal. They’ll learn more advanced budgeting, plus the ins and outs of finance to prepare them for the business world.
Encourage career planning
Most teens don’t know exactly what they want to do with their lives yet, but it doesn’t hurt to start sketching out some rough plans. Say your teen is considering nursing. Have them look at how much money nurses make, how many hours they work and what living costs are like in your area. Encourage them to look at average salaries and expectations of various careers — this can really help to guide their career path.
Let them learn from you
If you feel comfortable with it, let your teen in on your family’s finances. Show them your budget, and explain to them the various ways that you make it work. If you’re uncomfortable showing them the real thing, you could at least make a detailed sample budget, and explain how one can make it work in real life.
Those are my ideas — do you have any other tips for teaching kids about money?
— Tanya Mead