How to teach kids about money

How to teach kids about money

If you don’t teach your children/grandchildren about money, somebody else will. This is not the risk you want to take so, give your little ones a head-start you wish you had, which could change the course of their life. One day they will thank you for it and you won’t have to worry about their financial future.

Pre-school age

1. Use a clear jar to save

Using a piggy bank is a good idea, but a child is unable to visualise what is happening inside. With a clear jar, they can actually see the jar getting fuller and fuller and it can be very exciting for them to see their money grow. Talk to them how big of the deal it is, to have the money grow.

2. Set an example

The way you treat money is by the way of habits that we form by the age of 7 (University of Cambridge). So if every day you use your “plastic card” to pay for your expenses, kids see that and they tend to believe money is just a plastic card that like a magic wand you swipe and you can continue buying and buying with no end to it. Introduce and show them real money.

If kids see you arguing at home about money, they associate money with problems and that can create a very wrong opinion about money and create an unhealthy relationship with money for the rest of their lives.

Set the right example that they can follow and have a positive view about money that creates financial success rather than financial stress.

3. Show them that “stuff” cost money

Telling your kid that the toy they want to cost $10 is not enough. Make them take money out of their jar, go to the store, get the toy, and pay for it with their saved money. This will give them a better grasp of the value of money than any explanation of yours. Show them the empty jar now to make them realise in their heads if they buy was a good idea or it would be better to have the jar full.

4. ATM

When withdrawing money from the ATM, explain to the child that this is not a “hole in the wall” that produces an endless supply of money, but that you have to work for that money. If you spend it, the hole in the wall will have no money to give to you.

Elementary school age

1. Show the opportunity cost

By this age, kids have developed enough to be able to weigh decisions and understand different outcomes. If your child/grandchild wants to buy a game or make-up, explain that if they buy that, they have no money to buy shoes (alternative necessity).

At supermarket show that you can buy the same item at a lower or higher price – and let them find the best price (play the game).

2. Paying bills

Most bills we receive via emails and pay for them online, so there is no money involved, just like with the ATM. Involve your child in the bill-paying process, explain that the internet costs money, electricity, and gas cost money. Teach them to switch off lights when leaving a room. Make sure the water is not running when leaving the bathroom. Explain in the language they can understand: “Not only you save money, but you help the environment and have more water in rivers when we go for our holidays.

3. Give commissions, not allowances

Don’t just give kids money for the fact that they are your kids and you can do it. Make them help you around the house, clean their room, take out the trash, cut the grass – do the list of jobs they can do, and pay them for their work. Kids will very quickly understand the value of money, as well as the value of work. You can encourage them to approach neighbours to cut their grass and earn extra money.

4. Avoid impulse buys

Just as I am advising adults to be careful with impulse buys, you need to teach the same to your kids. If they find “the perfect dress” “the must-have game”, even though they worked for the money, encourage them to wait one day before the purchase. Especially with more expensive items (say above $20). This will let them make a more level-headed decision, rather than jumping into it immediately and regretting after.

5. Stress importance of giving

I believe that from a little age we should be teaching our kids the joy of giving. They can choose the charity based on what they hear, observe, or experience (at school). With time they will understand that “the giving act” doesn’t just help the people one gives the money to, but also the giver. This will teach your child/grandchild empathy and joy of sharing and giving.

Please take care and stay safe 😊

by:  Katherine Isbrandt CFP®
Money Strategist & Retirement Planner
Principal of About Retirement