How to Teach Finance Skills to Kids

 Spend money for toy

Your kids as young as kindergarten are ready for finance. Well, they may not be ready to figure the present value of a lease agreement or do a budget right now, but you’d be surprised by what they can do.

Children are watching their parents and observing how they handle situations including money. Have you ever heard your child repeat things to others? They sound just like the parent in how they handle scenarios and what they say. Show them what right looks like when dealing with money.

Money Gifts

When others don’t know what kids have or like, they end up getting money for special occasions like a birthday. This is the perfect time to start teaching the kids about money.

Don’t worry about it becoming “boring” talking about money, because the excitement of them being able to pick out what they want will far outweigh the education segment.

Saving, Spending, & Donating

To start with, this is a teaching moment to talk about the difference between saving, spending, and donating.

  • Saving is keeping some money to be able to buy something later.
  • Spending is purchasing something now.
  • Donating may be more difficult to explain, but choose a charity or good cause that they have perhaps heard about to discuss more in depth with them.
    • They will be more engaged to donate if they choose who or where the money goes. They will also feel that sense of pride of accomplishment by being a part of the experience.

The amount that is divided among the categories of saving, spending, and donating will be different for everyone, but the importance of these are the same for all.

Scenario 1 – Save

Let’s look at an example. If there is a big-ticket dollar item that they want to purchase like a bicycle, the $25 or so that they receive will not be enough to buy it.

They can save the money until they get or earn more money.

  • Most piggy banks are solid, but I would suggest a clear bank so that they can “see” the money.
  • Use a visual too that shows how much they have now and what the cost of the bicycle is.
    • We’ve all seen the thermometers for a fund raiser where it is colored in to visually see how much money was raised. It is the same principle for the kids.
  • Explain why it is necessary to save money. Later in life, it will be saving for a car or house.

Scenario 2 – Spend

Another example is if they have $25 to spend, they can buy one $25 item or five $5 items.

  • Kids must make decisions on how they will spend the limited money.
  • The same will be true later when they receive a paycheck and must decide how to budget their money.

Imagine that your family is preparing for a vacation.

If the destination is a touristy place, there will be plenty of souvenir shops. Decide what your budget can afford to spend on souvenirs. Then let each of your children know that they will have $xx amount to spend.

  • Again, they can buy one bigger item or multiple smaller items.
  • In addition, they can buy them the first day of vacation or the middle of the vacation.

Experience shows that they think harder when it is “their” money they will be spending instead of Mom and Dad’s money. Let them know that when the money is gone, there is no more for souvenirs. This will let them know the expectation and prevent “buy this for me” conversations later.

  • Explain that decisions have to be made in what to buy and when to buy.

Scenario 3 – Donate

Include your kids at any age when you donate anything. It teaches them to help others. There are many food drives as well as many organizations raising money for various things they can be a part of.

No, it is true that their 60 cents may not change the world by itself, but if everyone donated 60 cents, think about how much good could be done with it. Every bit helps and is appreciated.

  • It lets them feel a part of something big and important because they contributed somehow.
  • It’s a moment to let them know that others can be helped not only with money, but volunteering time.

Ask them what they would like to donate to. If they don’t know, suggest two or three things and let them decide. Just like we want to help organizations that we believe in, they want to as well.

  • Explain that there are many things to donate money and time to, so research each one and decide what you want to be a part of.

Teaching kids early about saving, spending, and donating can be fun and build the foundation for future life lessons. While we focused on what types of things can be taught to young kids, there are multiple life skills that will be needed for when they grow up. Look for the teaching moments in their lives and build on their knowledge as they grow. Click here for a FREE Life Skills Checklist for transitioning from home to living on their own. This would be a great guide to refer to as they grow up and teaching moments surface.

Life Skills Checklist

Money lessons for kids

Learn ways to teach kids finance. . Don't worry about making it boring as they'll be happy to spend, save, and donate money.