Teaching Your Child About Finances

Navigating the murky waters of finance with your child may seem like a daunting task. In reality, teaching children about finances may not be easy, but it is an essential venture if you don’t want your son or daughter to be up a creek without a paddle later in life.

Billionaire business magnate Warren Buffett said there is a direct correlation between learning about money and business early and financial achievements once grown.


Teaching kids sound financial habits at an early age gives all kids the opportunity to be successful when they are an adult,” Buffett said.

Researchers at the University of Cambridge published a report commissioned by the United Kingdom’s Money Advice Service that disclosed that children’s money habits are formed by age seven.

Thus, it’s important to get a start on forming those habits as soon as possible. Below are some ways parents can teach kids assorted financial lessons at various ages:

Ages 2-4, Play Store.

Make-believe is a huge aspect at this young age. Encourage your child to ‘play store’ with you to instill the basics of commerce. Not only will this exercise his or her imagination, but it will also broaden the understanding that people exchange money for items that they want or need.

Ages 4-5, Clip Coupons.

Before you head out to the real-life store, ask your child to help you clip coupons. Once at the market, hand the coupons to your child and have him or her help you identify the items and the deals on them. This will open up a dialogue and is a fun way to discuss saving money, saysNeale S. Godfrey, chairwoman and founder of the Children’s Financial Network.

Ages 5-6, Invest in a Piggy Bank (or Two).

In addition to obtaining piggy banks, you can also use numerous jars and label them “Spending” and “Saving.” Every time your child acquires money — from chores, finding loose change, etc. — have him or her split it equally among the jars. Explain that the saved money is for big items that are more valuable, and therefore more expensive. The spending money is for everyday, smaller-ticket items like candy. This is where your child will start to grasp the concepts of making choices about how to spend money and utilizing saving to get what you want.


Ages 6-8, Take a Trip to the Vault.

At this point, you can take your child to your preferred financial institution and explain that his or her money will be safe there, while even gaining interest. In hopes, the “Saving” jar will be getting full, so regular trips to the financial institution will be necessary and something your child will anticipate in order to see how the money is growing.

Ages 8-10, Comparison Shop. 

Expand on the idea of making smart monetary choices by urging the reading of stores’ pricing labels. Most stores have the price per unit on the corner of the shelf sticker, so there is an opportunity to insert how basic math skills can help you find value. Also explain how quality can make a difference. If one week you buy a brand that doesn’t do the job as well or taste as good for only slightly less than the pricier brand you bought the week before, then maybe the more expensive name brand is worth the money.

Ages 11-16, Set a Budget. 

As children get older, expenses get slightly steeper. This is where comparing wants versus needs is important. Go over the family budget and explain that shelter (rent or mortgage) and food (groceries), for example, are necessities, but taste enhancers and desserts like condiments and cookies are not. People simply want them to make their meals taste better. Clarify that by budgeting your money, you’re sure that you always have enough for your needs, and then can make choices whether or not to spend money on things you want.

children-savings-3Ages 16-18, Turn College into an Investment. 

Most fully-grown adults understand that furthering education is, in fact, an investment for your future. However, children often get discouraged immediately when they see a steep price tag. Explain that college graduates often earn more than people without degrees, making it a worthwhile investment. The “quality” talk comes back into play here, as well, as you must take into account the prices of room and board, books, etc., and the quality of education and the college experience when deciding on the best value. Kids can also further their understanding of loans — student and other — at this point in their lives, as the discussion of financial aid will likely come up.

Age 18, Get a Student Credit Card. 

Many financial institutions offer a student credit card — a low-interest card that is designed as a way of building a credit score. Credit scores are used for a number of purchases later in life, such as an automobile or a home, so having any credit at all is a solid start. From there, explain to your child that the card is for necessities or school-related costs only, and it must be paid off in full every statement period to ensure good credit and keeping a low balance with minimum interest. Ensure to them that they will not want the burden of paying off student loans, as well as credit card debt after college.

As Buffett said, by breaking down the scary world of finances throughout your child’s life, you will be setting them up for success. Beth Kobliner, a member of the President’s Advisory Council on Financial Capability (who spearheaded the creation of MoneyAsYouGrow.org, which offers age-appropriate money lessons for children) agrees with Buffett.

“The sooner parents start taking advantage of everyday, teachable money, the better off our kids will be,” Kobliner said. “Parents are the number one influence on their children’s financial behaviors, so it’s up to us to raise a generation of mindful consumers, investors, savers, and givers.”

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