Teaching kids about money is one of the most valuable life lessons you can give them.
If you’re planning on raising money smart kids, you need to start early. In fact, the earlier the better. Your child’s understanding and attitude towards money can affect them throughout their life. If they learn how to handle money responsibly, your kids have a much better chance of being successful.
For kids learning about money, a big new challenge is that money has become ‘invisible’. Not so long ago we handed cash back-and-forth, and it was easier to show kids how this worked. Now, cards, phones and banks move funds from one place to another automatically. This can make it harder for children to really understand money, let alone learn the value of it. This makes it even more important to teach kids (early) about money and where it actually comes from.
Below we discuss how to teach kids about the value of money, and how to explain money management and savings goals for kids. We also throw in some activity ideas to help make it all stick.
How to teach children about money
Children have short attention spans and quickly tune out. This means so often they learn best when they are engaged visually, or when they physically do something.
Teaching the value of money
Talk to your kids about how you and your family need to earn your money, and why you can’t just have as much of it as you want. Talk about what you do to earn a living. Point out people who are working, in cafes, shops, on the roads, whoever you see, so your child better understands what a job actually is. Teach them the difference between a job, (eg. Waitress) and a career (eg. Lawyer) and the difference between the two regarding study requirements and income.
Show your child how everything around them costs money. Start with easily recognisable things, like electricity, food, clothes, toys and the petrol you need to take them to school. Get your child to imagine their life without the things that really matter to them, like their toys, the TV or their favourite dinner.
Once they have a grasp on that, you can introduce how everyone also pays a part of their income to the government to help to fund schools, hospitals, transport and all the other public services provided by the government.
Activity:
Write a list of household tasks that your child could do, like emptying the bin, sweeping the floor, and hanging out the washing. Put a price next to each task. When your child completes a task, pay them the amount shown. This teaches your child that money doesn’t just appear out of nowhere, you need to earn it.
Teaching kids about money management
Teaching children how to manage money is the most valuable step in raising responsible, money smart children. Introduce spending, budgeting and saving into their learning. This knowledge provides a solid financial grounding for children, along with their future bank balances.
Spending
When you start teaching your children about money, it’s good to talk about simple aspects of shopping such as:
- Why one product is more expensive than a very similar one.
- The difference between spending money on things that you need and things that you don’t.
- Making good choices – branded versus non-branded products. Is there actually a real difference?
- Why you can’t always have what you want as soon as you want it.
- And the big one: Teach them about the basics of advertising ploys. “You will NOT be cooler if you buy that toy!”
Activities for teaching your kids about spending:
There are many avenues you can explore with your children when it comes to spending. They may even be good for awareness of your spending habits. Here are a couple to get you started:
- Test out two supermarket products, one cheap and the other more expensive, and get your child to note down the differences. What are they? Do they matter? Which one would your child buy and why? (This is also a good way to teach your child not to be duped by a brand name when the brand is inferior to a cheaper yet better quality alternative.) This activity helps your child understand price versus quality.
- When your child is ready to buy something that they really want, help them compare prices in different stores, either online or in the shopping centre. Generally, one store will be cheaper than the others. Alternatively, one store may offer a bonus item with the purchase, which makes it better value. Comparison-shopping gets children into the habit of looking around for the best deal rather than buying the first thing they see. You can then encourage your child to save the difference in price (see below).
Budgeting
Introducing the concept of budgeting and saving money is a great way to teach children about money management, as a whole.
Discuss how budgeting can help your children get more from their money. Dividing their money between the different things they want, including putting money aside to save, helps children achieve more of what they want as they get older.
Explain how you budget and allocate money for things like bills, food, the mortgage, days out etc. Make sure to explain the difference between things you need and things you’d like, and how to prioritise them.
Activity:
- Get your child to write down a few things they would like to buy and do, both now and in the future. Then, encourage them to allocate a little of their allowance to each item, each week (include savings). Start them off with labelled jars so they can divide their money and keep track easily.
Saving
Your child can buy things like lollies, games or small toys when they’ve learned how to budget their money. However, when it comes to wanting bigger ticket items, introduce the concept of saving.
Saving introduces delayed gratification into a child’s understanding. If they delay the impulse to get an immediate reward, like lollies or other small treats, they’ll be able to get a much better reward later. Studies have shown that the ability to delay reward is present in highly successful people. That makes it an essential topic when you’re teaching kids about money. Saving is a habit to be nurtured, as it will also help to keep children grounded and financially secure.
A helping hand:
- When your child is saving up for something big, make sure you help them work out exactly how long it will take for them to reach their saving goal(s), so they know how long they will have to wait. If not, they may lose interest or get frustrated and give up.
- A little encouragement often helps in the early stages of saving. If your child is saving hard for something they really want and is making headway, encourage them often and perhaps give them a little cash boost each time they reach a milestone. Remember though, a little tough love will be good for your child’s commitment and resolve, so don’t step in and buy an item yourself if your child starts losing patience.
It’s a good idea to encourage children to save as a regular activity early on, this habit will be invaluable when they are older and want to go to uni, buy their first car or take a year out to travel.
Getting serious:
For longer term savings, consider opening a children’s savings account. Children often feel encouraged as their balances rise. Grandparents and other family members wanting to give your children money for birthdays and Christmas can then deposit it straight into their account, so it doesn’t become a temptation for your child to spend right away.
We found this great page about children’s saving accounts on popular consumer website www.finder.com.au. It compares and calculates the interest your child will earn depending on the amount of money they save. It also provides a little information about accounts for children that you should know about, including the best type of account for your child’s age and saving habits, so well worth a read.
Finally, when teaching your kids about money, don’t forget to teach a little compassion and kindness. Tell them about charities and how sharing money can help other people who are less fortunate than them. And sometimes, it’s good just to buy their sibling a jelly snake just because!
Further reading to help you teach your kids about money management:
This page is a great resource for teaching kids about money: https://raisingchildren.net.au/preschoolers/family-life/pocket-money/money-management-for-children#how-to-use-money-wisely-budgeting-and-saving-nav-title
Etax Resource: How Can I Help My Children To Be Successful and Financially Secure?
