Teaching Children About Money

How soon should I be talking to my children about money? It’s a question we hear a lot. Parents know it’s an important life skill that their children need, but knowing what’s developmentally appropriate is vital. A five-year-old can count coins and know the difference between “more” and “less,” but the concepts of the value of money and how it works in the real world are more advanced concepts.

Financial education has been linked to lower debt levels, higher savings, and higher credit scores as children mature into adulthood. Later on in life, that financial education is also positively connected to net worth and investing.

The FDIC has developed a set of four grade-specific curriculums called Money Smart for Young People to deliver basic financial concepts to students in kindergarten through 12th grade.

Here are a few suggestions for parents:

• Teach your child about the relationship between work and money. Talk to them about how earning money by working puts value behind every dollar and shapes decisions on how you’ll use it – saving some, spending some and ways of finding the best price and quality on the things you buy.
  
  
• Engage in discussions about needs versus wants and the importance of prioritizing necessities and saving before discretional spending on fun things like entertainment or toys. You can find great examples in everyday shopping: Food for breakfast, lunch and dinner is a need. Candy and desserts fall in the “want” category.
  
  
• Children learn by playing. Games with play money, such as imaginary “store,” can teach concepts of pricing and supply and demand. Online games like the FDIC’s How Money Smart Are You? provide an engaging way for older kids to learn more advanced concepts like housing decisions and credit.
  
  
• Reading with you is another great way to prompt discussions about money. A number of children’s books currently on the market teach all about earning, spending, saving, borrowing, and donating. Check your local library for suggestions.
  
  
• If your child is eager to earn real money, consider age-appropriate chores for which they can earn a small allowance to get them started practicing earning, budgeting, saving, spending and donating.
  
  
• If they’re motivated to have a lemonade stand or sell some of their toys in a garage sale, use these as learning opportunities as they price their items, “market” the sale, make change for buyers and plan what to do with the proceeds.
  
  
• At an appropriate time, make an appointment with your local bank for your child to open a savings account and bring them to the bank regularly to make deposits. Your banker can help teach them about the safe-keeping of money and the relationship between checks and debit cards and the money in their account.

And above all, your attitude and example will set your child up for a healthy relationship with money and skills that will benefit them into adulthood.