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Five Easy Ways To Teach Children About Money

1. Introducing Money Concepts Early

Start teaching your kids about money as early as possible. This doesn’t mean giving a lecture about economics to a toddler but rather introducing simple concepts such as trading items of value for other things. You can use pretend play to teach your child that money is used to buy goods and services.

For instance, during a pretend play session at the grocery store, you could introduce coins and bills and explain their values. Let your child ‘purchase’ goods by handing you these pretend currencies. This tactile approach will make these unfamiliar concepts more tangible to your child.

Let’s consider a scenario where you and your child are playing “shop”.

• You could explain that a chocolate bar costs two coins.
• Your child gives you two coins from his ‘wallet’ and receives the chocolate bar in return.
• This initiates a basic understanding of spending – one has to give something (money) to receive something else (goods or services).
• You can increase the complexity by adding more goods with different prices to allow your child to decide what they want within their budget.
• Subsequently, this shall sow the first seeds of budgeting and decision making.
• You can also give them ‘currency notes’ for more expensive items to introduce them to higher values.

2. Regular Allowance for Learning Budgeting Skills

An allowance can serve as an incredible tool for teaching children about money management. This should start when the child is old enough to understand the exchange value of money – often around the age of 6 or 7. The key is to initially guide them on how to spend wisely, save consistently and yes, even donate benevolently.

One way to approach it would be to discuss with your child about the different things they want to do with their allowance: how much they want to save, how much they want to spend and which charity they might want to contribute to.

Imagine your child wants a new toy costing $15, here’s how the teaching could go:

• First, encourage them to save a part of their allowance each week until they have enough to buy the toy.
• During this time, remind them not to spend all of their money at once ensuring that they accumulate enough savings for the toy.
• This instills patience and showcases that saving up allows us to buy things we wouldn’t normally be able to afford in one go.
• Alternatively, you could suggest they could split their allowance into three parts – for spending, saving and donating.
• Such a division prompts them to consider others before making any financial decisions, reinforcing the importance of altruism.
• Talk about different charities or causes, and help them choose where they would like to make a contribution.

3. Hands-On Experience with Banking

Bring your child along the next time you visit the bank to start a conversation about how banks operate, which can segue into other concepts such as interest rates, loans, and credit cards as they get older. For younger children, simply understanding that a bank is a safe place to keep their money can be a useful lesson.

Invite your child to open their own savings account. This provides an excellent opportunity to explain how interest works and allows them to experience how money grows over time. Moreover, it emphasizes the value of saving instructionally.

Consider the case when you bring your child to the bank to open his first savings account.

• The banker will explain various terms and conditions associated with the account.
• Your child will receive their passbook or statements showing their deposits, withdrawals and accumulated interest, fostering responsibility.
• The child sees their money grow over time due to the added interest, which is a reward for saving money rather than spending it.
• This practical experience could furnish them with a real-world understanding of the power of saving and compounding.
• You may also discuss why banks give interest, introducing the idea that they lend the deposited money to others who pay back more than they took, leading to the concept of loans.
• Emphasize that while banks are useful, trusting them too much often leads to debt, teaching caution in financial management.

4. Teaching the Differences between Needs and Wants

Children often confuse wants with needs, so educating them about the difference is critical in understanding budgeting and saving. For instance, clothes are a need, but designer clothes often tip into the ‘want’ category unless these are chosen with a deliberate intent such as a strategy for self-branding.

One way to impart this lesson could be through visual representation of needs vs. wants on a chart or board. This exercise will enable children to prioritize their desires, helping them become more thoughtful spenders.

If your child insists on buying a premium video game which is a ‘want’, you can display how this desire affects their ability to fulfill other ‘needs’ like purchasing essential school supplies.

• Create two columns titled “Needs” and “Wants”.
• Help them list items under each heading based on actual requirements and fanciful desires.
• Highlight the monetary value associated with each object and how it impacts their overall budget.
• This visualization process provides an explicit representation of how sacrificing some ‘wants’ can ensure all ‘needs’ are met comfortably.
• Moreover, by consistently updating this chart, children can track their changing needs and wants and understand the compromises necessary to stay within budget.
• Gradually, this awareness can develop into healthy spending habits where needs are met first and wants are indulged in mindfully.

5. Encouraging Earning through Chores and Small Jobs

In addition to receiving an allowance, providing opportunities for your child to earn extra money can teach them about the connection between work and pay. Assigning chores or encouraging them to take on small jobs such as a lemonade stand or yard sale effectively illustrates the effort behind earning.

For example, establish a system where doing household chores can earn them extra pocket money. Keeping track of their earnings and how they manage the additional income can teach them valuable lessons about work ethic, responsibility, and financial management.

Suppose you assign a value to every chore done like $1 for taking out the trash, $2 for mowing the lawn, etc.

• Offer opportunities to make some quick money by doing these chores.
• Your child will equate the effort put into work with monetary reward, learning that money isn’t easily earned.
• This encourages work ethics as they toil hard to earn extra dollars.
• It also empowers them to take control of their finances since they can influence their ‘income’ by working more.
• Handling this unique income stream may also prompt them to revisit their budget, thus reevaluating their needs and wants.
• Overall, it fosters a sense of accomplishment knowing they played an active role in earning their own money.

Summary Table of Teaching Children About Money

By incorporating these five strategies into your child’s life, you’ll provide them with a strong financial foundation. Remember, it’s never too early to start teaching children about money. With consistency and time, these lessons will eventually become ingrained habits that serve to secure their financial future.