One of the most important, but often overlooked, conversations with children is about financial literacy. As parents and just adults in general, we have probably made our fair share of financial mistakes. So, why are we not discussing it with our children?
Taking the time to incorporate financial skills early in your child’s life can have a significant impact on them as they grow. It may seem silly to begin teaching a 4-year-old about finances, but all things have building blocks. The building blocks and foundation that you help set now will pay off for your children later in life.
In this post, we are going to discuss why financial literacy is important, how we can teach our children about it, and how we can grow a culture of financial responsibility at home.
Please note that I am not a financial advisor. None of the content you will find in this article is about what you need to do with your money, specifically. For that kind of information, I highly recommend speaking with a financial counselor or professional.
In This Article:
- Why Financial Literacy is Crucial for Kids
- How to Introduce Financial Concepts to Kids
- Age-Appropriate Financial Lessons
- Tools and Resources for Teaching Financial Literacy
- Creating a Culture of Financial Responsibility at Home
- Final Thoughts
Why Financial Literacy is Crucial for Kids
Parents work hard to give their kids the skills and knowledge they need to succeed in life. Financial literacy is an essential yet frequently disregarded component of that toolkit. Financial literacy gives children the knowledge and skills to make decisions that will impact their present and future, beyond just helping them understand money.
Let’s start by realizing that financial literacy covers more than just saving and spending. It involves knowing the value of money, acting responsibly, making plans, and comprehending the economic environment in which they live. A solid financial literacy foundation allows them to create secure and healthy futures.
Consider how they can apply these skills. Sure, early in their life this may be something simple, such as saving for a toy they want. Later in life, this assists them in buying a car, a house, taxes, and so many other “adult” things.
Let’s not forget that teaching financial literacy also involves instilling moral principles like control, discipline, and responsibility. Children who are aware of the value of money are more likely to value their possessions, appreciate hard work, and comprehend the importance of charitable giving.
Children’s financial literacy is more than just a set of lessons; it’s a path to empowerment, independence, and security. As parents, we can ensure that our kids have the knowledge and skills necessary to make wise financial decisions throughout their lives by starting them on this journey early.
How to Introduce Financial Concepts to Kids
Financial literacy may seem like a daunting topic to introduce to your children, but with the right approach and tools, it can be a natural and even enjoyable part of their learning journey. Here are some strategies to make financial education engaging and understandable for kids of all ages.
Start Early and Keep Their Age in Mind
Financial literacy should be introduced early on and developed gradually, much like learning a new language. As they get older, gradually introduce more complex concepts like budgeting, saving, and investing after starting with simpler ideas like the value of different coins and bills.
Make It Fun and Interactive
Introduce the idea of money through play and everyday situations. Create a pretend store or bank using play money, talk about prices while grocery shopping, or let them watch you pay bills while you explain what you’re doing. Making these lessons engaging and applicable is the goal.
Simplify Complex Concepts
Break down complicated financial terms into simple, child-friendly language. For instance, instead of introducing “interest” as a financial term, explain it as “money growing over time if saved or invested wisely”.
Use Real-Life Scenarios
Incorporate financial lessons into real-world situations. If they receive money as a gift, guide them on how to divide it for spending, saving, and maybe even charitable giving. This provides a practical understanding of how money management works in real life.
Teach Through Mistakes
It is completely okay for your children to mess this up! Their mistakes will be their greatest learning opportunities. This is where you can help! Show them a better way for future reference and make the conversation educational, but be understanding.
Introducing financial literacy to your children is a significant step toward preparing them for the future. Keep the lessons practical, engaging, and appropriate for their age and understanding. Remember, the goal is not to make them financial experts overnight but to lay the foundation for wise financial decision-making as they grow.
Age-Appropriate Financial Lessons
Every child is different and every age group is unique. We have to keep this in mind with any teaching that we do, but especially for something like finances that can get rather complex. Ensuring that we teach age-appropriate lessons can greatly increase the amount that they retain. Here are some ideas for each age group.
Ages 3-5: Identifying and Understanding the Value of Coins and Bills
At the start, the lessons can be as simple as identifying coins and bills and understanding the basic concept of exchange. You could use play money or real coins and bills to play ‘store’ or ‘bank’ with your child. Let them ‘buy’ toys or snacks with their ‘money’, which reinforces the concept of exchange and value. At this stage, you can also introduce the idea of earning by rewarding simple tasks done around the house with small amounts of money.
Ages 6-8: Basic Budgeting and the Concept of Saving
As your child grows, so does their capacity to understand more complex concepts such as saving and basic budgeting. Encourage your child to set a savings goal for a desired toy, teaching them about the importance of waiting and budgeting. You can also introduce a physical representation of savings, like a piggy bank or a clear jar, to make progress visual and motivating.
Ages 9-12: Intermediate Financial Concepts (i.e., Investing and Interest)
For the slightly older kids, it is a great time to introduce concepts like interest and basic investing. Children at this age can better grasp abstract concepts. You can leverage online games and children’s books about money as teaching tools. For real-life practice, consider opening a savings account in their name to help them learn about interest in a practical way.
Ages 13-15: Advanced Financial Literacy (i.e., Understanding Loans, Credit, and Taxes)
Around 75% of teens feel they are not equipped with enough financial education. Most are not confident and are scared of making long-lasting mistakes in adulthood.
Greenlight, 2022
As your child enters their teen years, you can start to discuss more sophisticated financial concepts like loans, credit, and even taxes. Use real-world simulations to bring these ideas to life. For instance, ‘loan’ them money for a big purchase and devise a repayment plan. Discuss what credit is and its importance for future financial decisions like buying a car or a house. It’s also crucial at this age to talk about potential pitfalls and the consequences of poor financial management.
Remember, these are just guidelines. Each child is unique, and the rate at which they understand and absorb these concepts will vary. The goal is to make financial literacy a consistent part of their education, expanding their understanding as they grow.
Tools and Resources for Teaching Financial Literacy
Sometimes when teaching our children we can use some assistance. This is where books, online games, and online resources come into play. Here are a few that we think are a great addition to families looking to teach finances.
Financial Literacy Books for Kids
- “Lemonade in Winter: A Book About Two Kids Counting Money” by Emily Jenkins: A fun story about entrepreneurship and counting money, ideal for younger kids. (Amazon)
- “The Berenstain Bears’ Trouble with Money” by Stan and Jan Berenstain: This classic teaches kids about the importance of managing money. (Amazon)
- “How to Turn $100 into $1,000,000: Earn! Save! Invest!” by James McKenna and Jeannine Glista: Perfect for older kids, this book offers a comprehensive guide on how to save, earn and invest money. (Amazon)
Mobile Apps and Online Games That Teach Financial Literacy
- Bankaroo: A virtual bank for kids that teaches how to budget, count money, and manage bank accounts.
- “RoosterMoney”: This app helps kids track their allowances, set savings goals, and understand the value of money.
- “Financial Football”: An NFL-themed game developed by Visa that teaches financial concepts through sports strategy.
Websites and Online Resources for Parents
- Jump$tart Coalition: A national non-profit that provides financial education resources for parents and educators.
- Money as You Grow from the Consumer Financial Protection Bureau: This site offers age-appropriate money lessons and activities for children.
- Practical Money Skills by Visa: This site provides financial literacy resources, including lesson plans, games, and more.
There are a ton, and I mean a ton, of financial resources out there for children and parents. This is just a short list of a few that stuck out to me. Any resource that helps your family is the best one for you!
Creating a Culture of Financial Responsibility at Home
We create the culture in our houses by the actions we take and the words we say. If you want your child to behave you instruct them and you show them what good behavior looks like. This is no different with financial literacy. If you want them to become good stewards of their finances, show them what that looks like.
Unfortunately, with that also comes the negative side. Your children pick up on everything that you do. Even if you do not believe that they are watching and listening, they are. So, when we make poor decisions repeatedly, they may too. When we dismiss the need to learn or correct our mistakes, they may not feel inclined to learn or correct their own. They are sponges and they soak in whatever is around them, good or bad.
Be open in conversation about finances with your children. Teach them some of the ideas we have talked about today and use your own life as a foundation for these lessons. If you have financial triumphs, share them with your children. If you have financial shortfalls, share those too. These will help your child to learn about consequences and correction and can benefit them later.
Choose today to start teaching your children the lessons you desire for them to learn. This goes well beyond just finances, but something like this may just shape their future in ways you cannot even imagine.
Final Thoughts
I hope that this article has shed light on the need to teach children about finances and that it has motivated you do to so today. This isn’t something that has to take place overnight, but it is worth putting on our to-do lists.
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