Money Lessons for Young Kids and Tweens

As parents, we aim to fill our kids’ world with magic, telling imaginative stories about beanstalks we can climb to the sky and genies that hang out in bottles, waiting to grant wishes. But when it comes to money, we snap back to reality. Money doesn’t grow on trees, we remind them. We understand that the lessons we impart today can shape the financial future of our children in major ways.

To make these lessons stick, it’s important that we start young and move beyond mantras. We need to demonstrate, explain and model the financial habits that will set our children up for security. Here are three ways to teach young children about money:

1. Demonstrate How Money Shows Up in Life

The best way to talk about money is to explain how to interact with it in everyday life. Take your child shopping with you and explain your purchasing thought process. Show them how you shop with a list because it helps you stick to a budget and avoid impulse spending. Explain why you buy generic for certain items but pay a premium for items where quality matters.

Even if your children are very young, they can still benefit from money lessons. Children as young as three years old can begin to grasp the concept of money. You can introduce this concept through play, whether it’s running a play store using pretend money or helping them identify different coins.

2. Practice with Real Money

Many personal finance experts recommend giving your children a weekly allowance so they learn how to manage small amounts of money. Experts recommend about 50 cents to a dollar for every year of their age, which translates to $5 to $10 per week for a 10 year old.

From there, have them consistently allocate their allowance into three clear plastic containers labeled, “Give,” “Save” and “Spend.”

The “Give” container teaches them to be generous with their money, giving to individuals, causes or organizations that help the greater good.

The “Save” container teaches them the value of saving for future goals and how waiting pays off.

The “Spend” container gives them a finite amount of money to spend at their discretion, and will teach them how to be thrifty. They will learn to prioritize items that will bring them the most joy and utility.

They will make mistakes, but it’s better for them to learn from small mistakes now than to suffer the blow of a spectacular financial catastrophe in their adult life. And when they fail, don’t bail them out. Let them feel the regret of a bad purchase – it will drive them to think through their decisions more thoroughly.

3. Talk about Wants vs. Needs

Have a frank discussion about the family’s broader financial picture. Explain that your budget prioritizes the family’s basic needs first: housing, food, utilities, clothing, etc. When children demand video games or other non-essentials, help them imagine a world where their “wants” were prioritized and there wasn’t enough money to meet their needs. A simple imaginative exercise can help them see that they need shelter and food to survive, and they can live without the latest games.

Talking about money to kids can seem daunting, but you’ll be surprised at how well they can grasp this concept and how significantly you can shape their habits into healthy ones that will ultimately bring them financial happiness. By simply explaining your interactions with money in ordinary life, discussing the differences between wants and needs and practicing with real-life money, you’ll be setting your kids up with a great foundation.

This post is the first of a two-part series on money conversations with your kids. Read part two, “Three Financial Conversations to Have with your Teens and College-age Kids” here.

The materials on this blog are provided for informational purposes only and do not reflect the opinions of ChimpChange LLC or Central Bank of Kansas City, Member FDIC. Several of these blog posts may contain links to content on third party websites which are provided for your convenience, please note that linked sites may have a privacy and security policy different from our own, and we cannot attest to the accuracy of information. ChimpChange LLC and Central Bank of Kansas City do not guarantee nor expressly endorse any particular product, service or third party content.