Last week I talked about how to teach your older children about money. Today’s focus will be on teaching young children (~5-8) about money.
It is important to begin teaching your children about various aspects of life from an early age. Because money and finances will always be a part of their lives, I encourage you to begin talking to them around age 5.
For young children, abstract concepts such as the value of money will be difficult to comprehend because this type of thinking does not develop until much later (roughly age 11). As a result, I encourage you to focus primarily on counting money, learning delayed gratification, and basic financial ideas. Basic financial ideas would include saving, interest using simple addition, and ‘budgeting.’ Bonus points for covering money as a time concept (AKA “this toy costs a week’s worth of chores.”)
How you approach this topic will vary across families. I’ve created a list of ways to discuss money with young children, some of which will work better than others for your family.
Here are some ways to help teach your young children about money:
I’ve mentioned in my previous posts about different ways to structure chores (variable vs. fixed cost). I firmly believe that chores help children develop a sense of responsibility and helps prepare them for future job expectations.
Chores can also help develop a child’s sense of independence since they can begin to earn their own money. If you decide to use chores, be sure to use age-appropriate chores and amount of chores (making their bed, cleaning their room, etc.).
Chores are also a great way to help prepare your children for independence once they leave home, since chores are life skills needed to successfully maintain a home.
As for payment (allowance), you can employ the variable or fixed cost method. With variable chore cost, you assign a value to each chore your child is responsible for an individual price you will pay for the child to complete this task. With fixed cost, you provide a lump sum payment after all chores have been completed.
2. Money Management System
Everyone needs some kind of money management system. A money management system is any system used to plan and manage your finances. This can take many different forms: a written budget, cash envelopes, electronic envelopes, jars, etc.
Each family will have their own system of what is important. The most common categories are:
Typically, four or fewer categories are ideal. The purpose of this is to show them how to divide their money into important categories. Be sure to explain the purpose of the system and your reasons for implementing the system.
Important note: if you want this information to stick, give your child a sense of control over their money by allowing them to determine how they would like to divide their money. If they don’t have a say in how it’s divided, they’re likely just doing to get angry and/or reject the system entirely.
Because most people are visual or kinesthetic learners, using a tangible, visual system (like jars or envelopes) is most helpful in teaching kids about how to prioritize their money. The act of seeing and manually dividing their money helps them to develop a more lasting understanding and practice of these skills.
If your child is an auditory learner, spend more time discussing the importance of this system and why you believe they should use it.
Regardless of what type of learner your child is, make sure you have them explain back their understanding of the system.
3. Mandatory Family Costs
Every time your young child is paid, have them set aside 10% for a contribution to the family. This money will be used to treat the family in some way, such as ordering pizza, going out to dinner, taking everyone to the movies, etc.
This practice helps young children develop a sense of accomplishment, pride, and self-confidence because they are able to provide something for their family. It also gives them control by letting them pick a family activity.
4. Teaching Through Games
For children of this age, I highly recommend sticking to more traditional board games rather than technological games or apps since technological games offer many distractions, ads, and temptations. Personally, I love Monopoly, Life, and Payday as board games to help your children learn about money. I find board games allow a better opportunity for you to help them work through problems and discuss possible solutions.
Technology can be a helpful tool, as well. There are several great options available, though I recommend Neopets.
With Neopets, your child has an account where they can earn points to purchase items for their pets. There are many different games your child can play to earn points and work towards their goals. This whole process teaches working towards goals, saving money, comparison shopping, and much more.
Other online options include Reality Check, Celebrity Calamity, and Financial Football.
As always, when your child is on the internet, be sure to monitor what they are doing for safety.
5. Talking To Them
Young children are basically information sponges. They learn hundreds of things every day. Take advantage of this by sitting down with your child and talking about money. Focus on the important things you want your child to know at this stage, such as the importance of saving and/or delayed gratification.
You can also incorporate this discussion into playing a game with them.
The earlier you begin talking to them, the more ingrained it will become. Focus on helping guide your young child toward success with money.
Young children are not too young to begin learning about money and developing skills to be successfully independent in later years. Focus on the beneficial lessons you want them to know and make learning fun.