When it comes to teaching children and young adults about managing money, most schools in the United States get a failing grade.
Without a formal national or statewide curriculum in place, learning to balance a checkbook registry is about as far as most schools go (if you’re lucky) in teaching our kids financial responsibility.
Parents must take proactive measures to ensure their kids have the money skills they need to lead prosperous (i.e. less financially stressful) lives.
By no means am I an expert in early childhood development, instead I’ll share what worked for me growing up, and what seems to be working as my wife and I raise our own kids.
Teaching Your Toddler about Money (Ages 1-3):
The Concept of Buying Things:
Young children seem to grasp the concept of “buying” things at an early stage. From their first trip to the grocery store with mommy and daddy, kids are constantly observing scenarios in which “money” (whether in the form of cash, check, or plastic) is exchanged for an item or service.
Your toddler may not fully grasp the concept of “working” to earn money or “saving” to buy something, but by age two, most kids have grasped the concept of “buying” things.
You can encourage this development by letting your child “pay” for items at the checkout counter. My 3 year old loves handing cash to the cashier when we are at the register and then collecting the change.
I’ve also let her swipe our debit cards and credit cards before, but the affect isn’t nearly as positive as it is when using cash.
Open a Personal Savings Account for Your Child:
If you haven’t already, it’s a good idea to establish a savings account for your child. You can cover the initial minimum deposit and then fund the account with a percentage of your child’s birthday, or holiday gifts.
Teaching Your Preschooler about Money (Ages 3-5):
Establish an Allowance or “Commission”:
By age three, I believe it’s a good idea to introduce “chores” to your children. Instead of giving your children an allowance, you can pay them a commission by assigning them a few responsibilities around the house.
Obviously, there is only so much they are capable of doing at this stage of development so you need to be creative in what “chores” you give them.
Some of our daughter’s chores are typical including picking up her toys, and “cleaning” her room (of course we help her on this one). Other’s “chores” are a little more creative and encourage her to develop her other skills as well. These commission-worthy “chores” include brushing her teeth, sharing with her sister, and saying “please” and “thank” you.
We track her progress on an inexpensive “chores board” (you can easily make your own) and “pay her” each week based on the chores she successfully completed.
It doesn’t matter how much you pay your child, the experience is equally rewarding whether the incentive is 10 cents or $10!
Reinforce the Value of Working:
You can further encourage your child’s financial development when she sees something she wants to buy in a store.
Ask her if she thinks she has enough money to purchase the item. If she has enough, you can ask her if this item is what she really wants to buy with her “hard earned” money. If she doesn’t have enough money, explain to her how long it will be before she will have enough money.
You may also consider asking her to wait a day or two. If she still wants to purchase the item, you can pick it up next time (more often than not, she will quickly forget about the item).
Teaching Elementary School Kids about Money (Ages 6,7,8,9,10):
Increasing Responsibility:
As your child continues to develop and mature, you can begin assigning them “chores” of increasing responsibility around the house. Whether or not you want to pay them more money is up to you.
I understand some parent’s beliefs that certain things are expected around the house and shouldn’t be compensated for. At the same time, the benefit of giving your child a commission (and then guiding them in how to spend, save, and give) is too valuable to pass up.
Teaching Junior High Kids about Money (Ages 11,12,13,14):
Introduction to Household Expenses:
By age 11, most kids have a very decent understanding of money although they still may think that it grows on trees (hence the name of this website).
One of the best things you can do is grab your child when you are paying your monthly bills. Show him how much monthly income you have, and how much you have in monthly expenses.
Let them guess how much money you spend on groceries, clothes, and entertainment each month, and them show them how far off they are (chances are they won’t have a clue)!
Be careful opening up your books to your children if you are in a real financial mess. You don’t want them to be worrying that you won’t be able to afford the mortgage, or put food on the table.
The Stock Market Game:
Another great exercise at this age is introducing your child to the stock market. This was one lesson on personal finance I remember from when I was in junior high. Our junior high school participated in a nationwide competition called The Stock Market Game where we bought shares of our favorite companies using a hypothetical $100,000 account. Each day we would check the financial section in the newspaper to see how our “investments” were doing.
If your child’s school doesn’t offer a similar program, I would strongly recommend mentioning it to one of the teachers!
Most of my investments are in mutual funds today, but the Stock Market Game helped me understand what made individual stocks (which make up my mutual funds) increase and decrease in value.
Your Kid’s Very Own Checkbook!:
Now may be the perfect time to open a checking account for your child. Depending on your child, you might decide to have your kid be responsible for writing checks out of her account to pay for her school meals, clothes, etc with money you deposit.
I remember several of my friends writing their own checks in junior high school, and the image has stuck with me to this day! I’ve always considered myself above average when it came to personal finance and even I had difficulty keeping an accurate checkbook register until I created my Excel Checkbook Registry Spreadsheet.
What have you done to help teach your children about money, budgeting, and saving? Share your ideas comments and suggestions in the comment form below!
{ 3 comments… read them below or add one }
Just found your site through NCN and love it! You are an inspiration!
I have 3 year old twin girls and am struggling with how to start with the allowance/commission thing and how to pay etc. Could you give any more detail on how you started, how much you pay, how you keep track etc. We have a bank account for each of the girls and a piggy bank where they put the spare change we give them. I really want them to understand that they have to work for their money and its not just given to them-I am just struggling with the getting started aspect. We expect our girls to share,say thank you etc without getting paid so I am not sure about paying them for that kind of thing. But cleaning up and helping out, definitely.
Looking forward to reading more of your archived posts.
Thanks for reading Lynn! I have written an article in response to your question about exactly how we administer our daughters “allowance”! It should go live 2/23!
Some great practical ideas here, thank you Lynn.
I agree that it is important to introduce your children to money as early as possible, as a natural part of life rather than some shady secret that we need to insulate them from until they are ‘old enough’.