How to Teach Kids About Money by Age

Talking about money is taboo in many families, and most parents do not even know where to start. Schools are not far ahead of parents. The Council for Economic education conducts a survey every two years to see what economic and financial education is available in K-12 schools. Only 21 states require high school students to take at least one financial course. With less than half of the US requiring even one economic class, financial education falls on parents.

Kids are taught by parents to drive a car because it is a skill required for daily life. We teach them what to do and what not to do, in an attempt to keep them safe. Parents should teach financial literacy in a similar manner.

We, as parents, should be teaching our kids to ensure they end up better off than us and don’t make our financial mistakes. While balancing a checkbook is a skill of the past, we can still help them build a financial mindset to help with buying a house, investing, preparing for retirement, managing debt (student debt comes to mind especially), and everyday financial decisions.

How to Teach My Kid about Money? I am not a CPA!

Relax, teaching kids about money is not as hard as you might think! If your financial wisdom is lacking, fear not. The lessons and activities are easy, and you probably do them today! The change will be adding your kid into the conversation! These activities are simple but effective to help your child grow financially wiser over time.

Mom giving daughter $10 to as part of How to Teach Kids About Money by Age

There have been studies conducted that children as young as three years old can grasp financial concepts such as savings and spending. There was another study that revealed the lessons and habits kids have with money are formed by age seven. There is no time like the present to get started on financial education.

#1 Money Lesson ages 3-5: Triple S (Spend, Save, Share)

This first lesson is all about delayed gratification, which is a concept most people struggle with as an adult. Amazon makes it so easy to buy something and have the next day. Did you ever try to put something in your cart and if it is there three days later you can actually buy it? Bet you would buy less stuff.

This same concept can be applied to your kids, don’t allow the store to turn into a place that impulse buys occur but rather help them understand the purpose of why you go there and stick to it.

An activity to help them learn about money is with a three jar approach. One jar is for spending, one for saving, and one for sharing. When your child gets money help them divide the money between the jars.

three jars spend, save, share, part of the How to Teach Kids About Money by Age activities from invest like dad

The spending jar can be used for small things like a piece of candy from the store they want. The savings jar should have a goal attached to it like a toy. They continue to save money until they have the funds to purchase the toy. The last jar is for sharing for doing something nice for others or helping people less fortunate.

This small activity will not only help them learn some basic money management skills but it also will help them with math and counting. Also when adding money make a big deal about counting it and how much it is growing.

Kids respond to progress and want to know they are getting closer to their goal. Another helpful hint is to have them pick a toy for a goal that is achievable and will not take forever to get. We are talking about 3-5 year olds who have limited attention spans and get frustrated easily.

#2 Money Lesson ages 6-10: Financial Choices

At this age, we have built a foundation of spending, saving and sharing with financial goals. The next step is to teach choices. Unfortunately, we as parents know far too well that money is finite and our choices have a large impact on our financial position. The jar activities can continue but some more realistic everyday financial decisions should start to include your kids.

How am I going to teach my kid about financial choices? Easy take them food shopping! So there are a few different approaches to this but it is easy to do tradeoffs (choices) that have little financial impact. An example might be my son, Jefferson might really want some ice-cream sandwiches. That was not in the plan for groceries this week but if we save the $2.50 on something we can then buy it. Are we willing to have store brand jelly instead of a more expensive brand to save $0.50?

Another activity you can do is have them shop for specific items for you. Tell your kid that you would like some sort of fruit like bananas but would like some other fruits and vegetables. The catch is that they can only spend $6 or whatever amount you want. They will have to find what they want, make a decision about how much they can afford, and then purchase it.

Other than having some weird dinner combinations, you will find out that we all make financial choices all the time and can easily share our knowledge and experience with our kids!

#3 Money Lesson age 10-13: Opportunity Cost/Compound Interest

My dad showed me the power of compound interest in excel but you can do the same thing using a free calculator on Investor.gov. The simple lesson that we are trying to teach our kid is that the sooner you invest the faster it will grow.

The next step is to focus on long term goals. I recommend playing around with the calculator and explain to your kid that investing $5 per month for the next 10 years will result in over $800. Use whatever example you want and makes sense to both you and your kid.

The second part of this lesson is to teach opportunity costs. Part of saving money for long term goals is not spending it today. If your child wants a new Ipad that will cost $500, are they willing to not buy a dollar snack at lunch each day at school to save for it? Is a slightly better lunch more or less valuable than saving for an Ipad which will take a while to get? This is just an example but this opportunity cost lesson is very valuable!

#4 Money Lesson age 14-18: College/Tech School

Going to college has become generally accepted or believed that it is required to have a rewarding/successful career. First, I want to make a pitch that college is not for everyone, and learning a trade can be a great career! Back to college, everyone talks about college and picking a major but very few people discuss the financial impacts of college.

Discussing things like the net price of a college as it includes things like fees, tuition, room and board, among other expenses is important. Having a conversation with your kid about what your family can afford to help pay for school and what loans they might need is important.

Last but not least, discuss how college will be paid for and if they will have loans as well as how the repayment of those loans will work once they graduate.

Your child should have an idea of what a starting salary of their major is prior to enrolling. This will help to paint a full picture of the impact of loans vs opportunity.

As a side note, I recommend discussing how to save money doing things such as living at home (bummer).  There are other ways to save money that they may like more like taking more credits per semester to graduate earlier or working part-time to start paying loans off sooner. 

#5 Money Lesson age 18+: Credit Card/Credit

Everyone loves how easy things are to buy with credit cards and there is nothing better than having a bunch of rewards points to spend on something awesome! But, they can be a huge burden on your finances if not used properly. Credit card interest is extremely high which makes paying off debt difficult. Teaching kids to only spend what they can afford and to pay of their credit card in full each month will save a lot of financial pain.

Another topic to include with credit cards is credit scores. Credit cards can help establish a kids credit which can be beneficial in a few years but it can also damage their credit for 7+ years. The impact of using credit cards improperly can impact buying a car, a house, getting a job or clearance!

Bonus Lesson: First Real Job

Once they got here congrats it’s time to kick back have a beer and relax some before grandkids come knocking in a few years! An honest conversation about things like investing, retirement savings, and health care, life insurance, and living expenses (avoiding being house poor) is an added bonus if you’re up to chatting with your kid.

Final Note

You are the best teacher for your kid and your interest in improving your own financial situation and sharing that is the best education money can buy! If you need some help with your situation check out my other page on how to build wealth!

“Children are educated by what the grown-up is and not by his talk.” –Carl Jung

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