The most influential teacher your young child will ever have is you – their parent, especially Mom.

Your children are considerably affected by how you use money on a day-to-day basis. Kids are watching and listening to you all the time, and they learn a lot through their observations.

Your children’s future habits are being shaped right now. Be careful to set a good example.

Teaching young kids about money

Starting early

It’s never too early to start teaching kids the value of money. As soon as they are able to count let them handle different coins and bills and learn to identify their values. Show your child how many coins of certain values it takes to equal another coin or bill.

Look for teachable moments – when going shopping, for instance. Explain where money comes from, how it is used and that different items have different values. Help your children to understand that people have to work hard to earn their money and have a limited amount to spend.

Provide an allowance

Giving your child an allowance can be a good way to teach basic money management skills. You could start giving an allowance at about age 5.

Opinions differ on whether or not allowance should be tied to household chores or used mainly as a teaching tool. If it is linked to chores, be clear about what they are doing for pay and what is expected as simply being part of the family. Either way, do offer kids a chance to earn extra income for doing infrequent household tasks such as washing windows or vacuuming the car.

Decide on an appropriate amount that you can afford, and keep it consistent. Pick a day of the week for “payday.” You can also use this day to have a discussion about what they plan to buy and how their savings are coming along.

Help them divide their allowance, or other money they receive, into categories such as saving, giving, and spending. Use cash and split it up into bills and coins to make it easier to place the money into each jar or piggybank.

  • Spending

Let them make their own choices – and make their own mistakes. This is very hard for parents to do. Don’t micromanage their money for them. Young children can be very susceptible to advertising, but they will soon learn when a toy is not as good as what the commercial has promised. They will learn a lot from the purchases they regret. You just need to be patient and supportive.

  • Saving

Give your child a piggy bank. Take your elementary school age child to the bank and open a savings account in his or her own name. Most financial institutions offer no-fee accounts for children. Encourage them to regularly deposit money they receive from allowances or gifts.

  • Gifting

Teaching your kids about giving to others is a valuable concept for them to learn. Help them to identify ways they can use their money to help others and make a difference.

Goal setting

It’s never too early to start thinking about what’s important to you and how you will get there. Teach them that there are choices when it comes to money and that spending on one thing means there is less available for something else.

Connect the money to a specific purpose to motivate your child towards saving for something they really want, such as a toy or special activity.

For young children encourage them to save for something they can reach relatively quickly. If they don’t see results they will lose enthusiasm.

Young children can decorate and label separate jars (or other containers) for each of their goals.

Conclusion

Learning how to manage money is a life skill. Like most behavioural skills, it’s much easier to teach a toddler or preschooler than a teenager.

If you start teaching your children about money when they’re young, they will learn how to make good decisions about spending, saving for the future, and how to practice good financial habits that will last a lifetime.

Where did you learn about money? From your parents? At school? From the school of hard knocks?

What’s your best tip for teaching young kids about money?

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8 Comments

  1. Tom on July 20, 2016 at 4:20 am

    I WISH my parents taught me about money. Their advice, while sound for their generation, was ‘save your money’ (very ING-ish.) 🙂 The methods I use today to manage money are totally founded based on the ‘school of hard knocks’. However, this site and Gail’s shows have been great learning tools. I have put a lot of what I have researched and watched into action to tighten up the flow of money (i.e. budget spreadsheet, enrollment into company DCPP, disaster-proofing with life insurance, etc). Life, up until three years ago, was the hard knocks that finally set things right. Just wish I could have come around sooner. 🙁

    • boomer on July 20, 2016 at 9:19 am

      Hi Tom. Unfortunately, you’re not alone. If money wasn’t a taboo subject at home it was at least not openly discussed. I also learned all about money management the hard way – when you’re counting out every last coin in your wallet to cover the rent you know something has to change 🙂
      The new generation of parents seem to be a lot more open and savvy, so I know today’s preschoolers are going to be fantastic money managers when they become adults 🙂

  2. Steve Boyko on July 20, 2016 at 7:45 am

    “Especially Mom”? Really? It’s the 21st century and many dads are at least as involved as mothers with raising their kids.

    I agree with the rest of the article. I would also add that it helpful for parents to discuss some financial decisions they make with their kids. I don’t mean in detail, but things like, “we’re going to place X for our vacation rather than place Y because it’s less expensive to stay at X” or “we can’t buy that right now because we are saving money for our next car”. Give them a window into how you manage money so they realize that money is not inexhaustible and that you have to manage the flow of it.

    • boomer on July 20, 2016 at 9:32 am

      @Steve Boyko: Yes, especially mom! I always get flack for this from so-called “progressive” parents.
      I give kudos to today’s dads who actively participate in the day-to-day caregiving of their young children (and apparently you are one of them), and there are many single dads out there. However, moms generally spend the most time interacting with their pre-schoolers. Mom’s are mostly the ones who take parental leave from their jobs and there has been a huge increase in stay-at-home moms since the 1990’s.
      Otherwise, your spending example is spot on. Involving your kids in comparison shopping and the buying process will help them make good spending decisions later on.

  3. Tawcan on July 20, 2016 at 9:44 am

    Our kids are still young but my wife and I decided that allowance shouldn’t tied to chores. Chores are household responsibilities that everyone should do.

    Anyway, agree to letting kids make their own money decisions. If parents are doing the decisions for them, how will they learn? Having a giving option is a great idea and valuable concept to learn.

  4. Michael O'Byrne on July 21, 2016 at 11:04 am

    One method I use is to involve my kids in situations where I am having a problem with whatever product or service that I have paid for. It can be a real eye-opener for them to see that the cable company will NOT provide what they contracted to do, or that the tool or appliance I purchased is not working properly and manufacturer/retailer don’t want to respond as they should.

    This not only shows them to be wary of what is advertised but also helps them learn how to handle the problem without losing your cool.

    I also show them this works two ways. When I get great service or customer support, I make sure it is recognised. I think real life examples can teach more, and be more effective.

  5. cannew on July 29, 2016 at 6:40 pm

    Nice article and sadly overlooked by most parents. We started a DRIP account for both of our grandkids with BNS back in 2008. Over time we contributed small amounts and made a point of reviewing the quarterly reports with them at least yearly. After about 3 years, they began to notice that the dividends paid were increasing and started to wonder when they would be $50, then $75, $100 and now $150. What they learned was that by owning shares that paid dividends and leaving them alone, they keep growing, even when no new money was added to the account. We also pointed out to them when the bank increased the dividend and how it increased their earnings.
    That’s how I believe they will learn about investing and that by adding to buy more shares will just increase the money they get paid.

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