Tips for Teaching your Child about Money

Tips for Teaching your Child about Money

While a good education is critical, many otherwise solid students enter adulthood unable to properly spend, save, and budget. As a parent, it’s up to you to ensure your child understands these important lessons.

Below we offer valuable money lessons and activities for all stages of your child’s development.

Age 3

Lesson: Start with the Basics

According to Forbes, children as young as three can understand basic financial concepts such as spending and saving. In general, they suggest turning day-to-day activities into learning experiences.

Activity: The Coin Game

The value of coins can be a tricky concept for young children. For example, if given the choice between a nickel and a dime, a child is likely to choose the nickel because of its larger size.

Parents.com recommends the coin identification game: “You and your child can trace around the outside of various coins and color in the shapes. Then invite your child to match the coin to the image while discussing each one’s name.”

Activity: Play Store with Play Money

Many kids love to play store, but this activity can be more than just an exercise in imagination. Use everyday items such as cereal boxes, paper towels, and fruit. Then make play money together with your child. By exchanging currency for goods, your child can start to understand the basics of commerce.
 

Ages 4 and 5

Lesson: Understanding Delayed Gratification

It’s a simple, but important lesson: in life you often have to wait to buy something you want. Through the concept of delayed gratification, your child can learn to wait and save up before buying.

Activity: Learning in Line

Let’s say your child is in line for the sliding board. This is an excellent opportunity for parents to explain the importance of waiting for what you want.

Activity: Three Jars

Create three jars labeled either “spending”, “saving”, or “sharing”. Every time your child receives money through chores or as a gift, have him or her split it equally between the three jars. The “spending” jar is for small purchases like candy or trinkets. The “saving” jar is for more expensive, long-term items. The “sharing” jar goes to those who may be in need, thereby demonstrating the importance of charity.

Activity: Have your Child set a Goal

If your child wants to buy a toy, have him or her save up in order to buy it. Just make sure the item is not too expensive, otherwise your child will have to save too long, and may lose interest.

Lesson: Getting a Good Deal

In addition to delayed gratification, another important concept is getting the best deal. If your child has saved up for a purchase, that’s a great start. But by finding an item at a cheaper price, your child gets to keep more money in the piggy bank. The value of this should not take too much explaining!

Activity: Coupons

Before heading to the grocery store, have your child help you clip coupons. Once you’re there, share the coupons, asking him or her to keep an eye out for the products. Not only will your child enjoy helping out, but you’re also starting valuable conversations on the importance of saving money.

Activity: Imaginary Restaurant

Many kids enjoy playing imaginary restaurant. This promotes a variety of skills such as table setting and good manners. But it’s also an opportunity to remind your child of the need to pay the bill. They’ll likely be excited to pay with play money or making change as the cashier.
 

Ages 6 to 9

Lesson: Get your Child Hands On Experience

Help your child understand both the impact of purchasing decisions, as well as the history of currency.

Activity: Informed Shopping

Teach comparison shopping by reading the store’s price labels with your child. Be sure to consider size and price, and potential bulk savings. Don’t forget to take quality into account. For example, one week buy brand-name paper towels. The next week, try a generic brand. Then discuss the differences and decide together if the brand name is worth the extra cost.

Activity: Collect Coins

This is a great age for your child to take up coin collecting. This helps your child understand the history of currency. There are many great online tools and games, such as the ones from the US Mint.
 

Ages 10 to 13

Lesson: Importance of Long-term Savings

According to Forbes, this is the age you can shift from the idea of saving for short-term goals to long-term goals. Introduce the concept of compound interest, when you earn interest both on your savings as well as on past interest from your savings.

Activity: Start Savings Account with Allowance

If your child gets a regular allowance, consider making a trip to your local bank and opening a savings account. Encourage regular deposits. As the balance grows, you can discuss the concept of interest and how the bank pays people back for saving their money. Many banks have children’s accounts that offer no-fee and no-minimum-balance accounts.

The best place to start may be a local community bank like the Bank of Southside Virginia. Most banks offer savings accounts, but with local roots, your community bank may take more time to help your child understand the smart decision he or she is making.

Activity: Get Specific with Compound Interest

Describe compound interest with specific examples and numbers. The less abstract the lesson, the more likely your child will be to retain it.

Reinforce the lesson by having your child try some compound interest calculations online. Investor.gov offers a handy tool.

Activity: Save for a Long-term Expense

Have your child set a longer-term goal for something more expensive. By making trade-offs, your child will begin to understand opportunity costs, the things you give up to save money.
 

Ages 14 to 17

Lesson: Impact of Long-term Financial Decisions

By going through financial planning exercises, your child can start to see how decisions made today can greatly impact tomorrow.

Activity: Family Stock Picking

Parents.com suggests this is a great age to teach children about the stock market. Have the whole family pick stocks for companies they know. For example, your child could choose Disney or Mattel. Then keep up with the stocks and discuss how the value of everyone’s choices fluctuates.

Activity: Understanding the Costs of College

Discuss with your child the many ways to finance college. Research which schools are generous with financial aid, as well as “free money” like grants and scholarship versus loans your child will have to pay back. Also discuss which government programs can help your child pay back these loans.
 

Ages 18+

Lesson: The Importance of using Credit Wisely

Teach your child the importance of building good credit without spending beyond his or her means and racking up huge interest charges.

Activity: Credit Card

Help your child learn this lesson by getting a credit card. Your child can apply on his or her own, or you can cosign. If you choose the latter, be sure your child understand the impact to your credit for financial indiscretions.

Once again, your local community bank may be your best resource. In addition to building credit, your child is also potentially building a long-term relationship with a bank.
 

A Final Caveat

While these lessons and activities are helpful, according to the Wall Street Journal, parents should place the most emphasis on nurturing overall math skills: “Without strong math skills, people tend to use more emotional ways to invest, spend or save their money. What’s more, people with less math experience make worse financial mistakes with issues like compounding or underestimating how quickly interest accumulates.”

While focusing on math skills is certainly not a bad idea, we believe that combining these skills with day-to-day lessons can prepare your child to become a financially responsible adult.

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