How to Teach Kids About Money

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You’re at the store, and your kid wants a candy bar at the checkout. Instead of a flat “no”, you see a chance to teach. You say that your money must pay for more important stuff like fruits, veggies, and their favorite cereal. This can be a start to teach kids about money wisely.

Experts say it’s key to teach kids about money early. It’s more than saying “no” to what they want on a whim. Carrie Schwab-Pomerantz, a top financial expert, notes many adults regret not learning about money sooner. You don’t want your child to have those same regrets.

Here’s something to think about: in 2022, only 23 states in the U.S. made it mandatory for high school students to take a finance class to graduate¹. That’s not even half of them! While schools are getting there, parents mostly have to teach their kids about money.

Kids who work young tend to save better later on². Also, teaching them to set saving goals helps them plan and save for the future². Whether it’s showing savings grow in clear jars or having them pay at the store, small steps can make big differences.

Key Takeaways

• Financial education is crucial for children to avoid future financial pitfalls.
• Only 23 states require personal finance classes for high school graduation¹.
• Young people with early work experiences are likely to become better savers².
• Setting savings goals can teach kids the importance of planning for the future².
• Even small, everyday actions can help instill financial awareness in children.

Introduction to Financial Education for Kids

Learning about money is key to building a safe future for kids. Carrie Schwab-Pomerantz and Chris Kawashima say it’s vital for later success. They believe knowing how to handle money protects kids from spending too much or saving too little. Yet, many schools still don’t teach enough about financial smarts.

Why Financial Education is Important

Financial education gives kids the skills to handle money well their whole lives. Carrie Schwab-Pomerantz points out that adults often wish they learned about money sooner. Lessons in finance help kids make smart choices on spending and saving. This sets them up for a good financial future.

Kids learn to avoid money mistakes and gain confidence in financial decisions. They also get ready to invest wisely. Being financially literate means they can look forward to a stable financial life.

The State of Financial Literacy in Schools

Still, financial literacy in schools needs improvement. The Council for Economic Education finds not many states require money lessons for graduation. In 2022, only 23 states demanded such education, showing a big gap¹. Even though places like Georgia and Michigan require finance courses, it’s not enough for everyone in the U.S.¹.

Gen Z knows this well. A study from Experian in 2019 shows 76% of them wanted money management classes at school³. They see the value in learning about finances early on. But, help from parents and the community is essential. By teaching kids about money, we prepare them for a better financial future.

Starting Early: Teaching Preschoolers and Kindergartners about Money

Teaching kids about money early helps them develop good money habits later. Financial education for little ones is becoming more popular. Experts have methods to teach these important skills early on.

Using Clear Jars for Savings

Using clear jars for saving money shows kids how money grows over time. This helps kids visually see their savings increase. Even young kids start to get the idea of saving for different things⁴.

Setting an Example with Your Own Money Habits

Parents play a big role in teaching kids about money. It’s important to show good money habits yourself. When you’re careful with money in daily life, you teach your kids to budget and save⁴. Parents who manage their money well are great examples for their kids⁴.

Understanding the Cost of Items

Knowing that items cost money is key for kids. Letting them pay for things shows them how transactions work⁵. It’s a hands-on way to learn about money management. Kids learn the value of money and start good habits early⁵.

Engaging Elementary Students in Money Lessons

Teaching kids about money early can help them later in life. Using fun activities makes these lessons stick better⁶.

Explaining Opportunity Cost

Opportunity cost teaches kids about making choices. Games like “I Have Who Has” help make this concept fun⁶. By counting coins, kids also get better at solving problems.

Implementing Commissions Instead of Allowances

Commissions for chores teach kids money is earned, not given. This lesson builds a strong work ethic early on. Using money task cards makes learning about money interesting⁶. This way, they learn the importance of working for their money.

Encouraging Patience with Purchases

Learning to wait before buying teaches patience. Kids should think before spending more than $15⁵. This prevents quick, regrettable purchases. Using jars for savings shows them how saving money works⁶.

Here is a summary of the studies that support these methods:

Teaching Kids About Money through Real-life Experiences

Teaching kids about money with real-life experiences is very impactful. It’s great to talk about money topics like saving and spending early. This can lay a strong financial foundation for them². Learning this way, they get to understand money’s role in daily life.

Getting kids involved in grocery shopping is smart. When they hand over cash, they learn how money works. This is key in a world where cash is used less². Starting to save early can shape how they handle money later, like for buying a house or retirement plans².

Letting kids earn money teaches them financial lessons. Working for money young teaches them about managing and budgeting it². Using budget apps like EveryDollar can help them keep good habits as they grow⁵.

The Hire and Fire Your Kids platform teaches kids financial responsibility in a fun way. They complete tasks for rewards and learn the value of work⁷. This approach boosts family teamwork and teaches kids about money early⁷.

It’s helpful to teach kids about buying choices. Explaining the impact of buying on impulse is key². Talking about budgets and saving for things they want, like movies or gas, helps them learn to plan². Introducing them to banking and the idea of compound growth is also beneficial⁵.

Real-life money activities are great for learning. They help kids become smart about money². And teaching them to give to causes teaches them valuable life lessons². By focusing on practical financial education, we’re giving them tools for life.

The Role of Allowances in Financial Education

Using allowances to teach your child about money can really make a difference. When you tie financial rewards to chores, your child sees the link between working hard and earning money.

Chores and Responsibility

Having kids do chores for their allowance teaches them about money’s value. You could give a fifth grader $5 a week, which adds up to about $20 a month⁸. A tenth grader might get $10 a week, or roughly $40 a month⁸. This approach builds a sense of responsibility and pride. You can also let allowances cover things like clothes and fun activities. This helps kids learn to plan how to spend their money⁸.

An age-based allowance system works well too. Giving $7 a week to a seven-year-old and $10 to a ten-year-old sets clear rules⁹. It’s a good idea to arrange weekly or monthly payments that fit both your child’s needs and your family’s schedule⁹.

Delayed Gratification: Saving for Big Purchases

Teaching your kids to save part of their allowance is valuable. They can set goals like buying a new bike, a cool gadget, or concert tickets⁹. Saving for these things instead of buying on a whim teaches them to make smart money choices. They learn the importance of waiting and saving for what they really want.

Starting a habit of putting money into a piggy bank or a real bank helps too⁹. Programs like Callaway Kids Bank offer hands-on money learning. They show how to save and spend wisely, providing important money lessons⁸.

The Importance of Giving: Teaching Generosity

Teaching kids about giving is key to their financial learning. It helps them care for others and understand donating’s value. They learn to work with others, talk effectively, and aim for goals¹⁰.

Studies find that kids ages 6 to 11 who help out are healthier and happier. They’re less likely to have behavioral issues¹¹.

Giving teaches children important values like kindness and honesty¹⁰. They learn about money management through giving, saving, and spending. These lessons boost their happiness¹².

Many adults say they learned to give as kids¹². Early lessons in generosity can change lives for the better. Kids feel proud when they make a real difference¹⁰. They also feel more connected and safe in their community¹⁰.

Learning to give shows kids they’re part of something bigger¹². Parents can talk about giving’s importance and helping others at home¹².

Making Financial Education Fun and Interactive

Making money lessons fun keeps young minds interested. By using interactive learning apps and financial education games, difficult ideas become fun. Explore fun ways to teach kids and teens about managing money.

Utilizing Games and Apps

Games are a great way to learn about money. Financial Football, from Visa, is a football game for 5th to 8th graders to learn money skills¹³. ZOGO teaches financial topics and gives gift card rewards, making learning interesting¹³. The Uber Game shows how the gig economy works, teaching valuable money lessons¹³.

Hands-on Activities and Projects

Real projects help with learning. Joining CNBC’s “Invest in You: Money 101,” a free 8-week course, gives practical money skills¹³. Doing real-world money tasks, like a mock stock project or starting a small business, brings financial concepts to life. Fitzsimons Credit Union even gives birthday money and savings matches¹³. Studies show teens know less than 65% about money management, showing the huge need for fun, real-world learning¹³.

Setting Up a Bank Account for Your Child

Teaching your child about money starts well with a bank account for them. It gives them a sense of managing finances early on.

Benefits of Early Bank Accounts

Opening an account teaches kids about saving. By 10, they can grasp reading bank statements and understanding their accounts¹⁴. A parent or guardian must help them open a custodial or joint account¹⁴.

Choose banks with no low fees and FDIC protection¹⁴. This ensures their money is safe and grows.

Tracking Savings and Interest

Teach your child about interest to make saving exciting. Learning about interest helps them understand how savings can grow¹⁴.

Getting them involved in banking encourages smart money habits¹⁴. This hands-on experience is vital for their financial future.

To open an account, you’ll need specific documents. This includes the child’s and your personal information¹⁴. Encouraging saving for big goals teaches them money’s value¹⁴.

Visit this link for more information on opening your child’s bank account: tips for parents opening bank account for kids.

Introducing the Concepts of Budgeting to Teens

Teaching teens to handle money is critical as they learn about money’s worth and planning. Providing them with the right tools and advice helps them get good at managing cash.

Using a Simple Budgeting App

Teens often use their screens a lot, which can make them spend too much, especially when comparing themselves to others⁵. A simple solution is to show them how to use budgeting apps. These apps make it easy for them to see what they earn and spend. This way, they learn to keep their finances in check and start being responsible with money.

Planning for Monthly Expenses

By their teenage years, kids should know the money basics well⁵. A good method to deepen this understanding is by planning monthly expenses. Having teens write down their monthly costs teaches them to think ahead about money. This planning helps them avoid surprises from unexpected expenses and shows the value of saving.

Here’s a simple method:

1. Jot down every income source, like allowances, jobs, and gifts.
2. List monthly costs, grouping them into categories such as food, fun, and savings.
3. Compare the budget to actual spending to spot differences and places to get better.

Teaching this way offers teens a strong base in handling monthly costs. It shows them how budgeting is key to managing money well and being independent. Actions like opening a bank account also introduce them to practical financial management⁵.

Explaining Credit: The Pros and Cons

It’s key for young people to understand credit and debit cards. This helps them make wise choices and steer clear of debt traps.

Understanding Credit Cards vs. Debit Cards

A credit card lets you borrow funds to be paid back monthly. A debit card pulls money straight from your bank account for purchases¹⁵. Knowing your credit limit is crucial¹⁵. This helps teens manage their funds better. Good credit practices lead to better loans and interest rates¹⁵.

Credit cards might charge interest daily, which can increase debt if unchecked¹⁵. Debit cards, on the other hand, might have less fraud protection¹⁵. Credit card fraud is notably common, according to the FTC¹⁵. There are also debit cards for teenagers, starting from ages 13 to 15¹⁵.

The Dangers of High-Interest Debt

High-interest debt is risky and should be avoided. Credit cards often have high rates that compound daily¹⁵. Teens need to learn the importance of paying off their cards fully each month¹⁵. For teens under 18, a cosigner or income proof is usually needed for a credit card. They might also be added as authorized users on their parent’s card¹⁵. It’s a serious step that demands careful financial planning and understanding.

For more tips, you might find this advice on teaching kids the difference between debit and credit very helpful.

Working for Earnings: Jobs and Micro-Businesses

Getting teenagers to work or start their own businesses can greatly improve their understanding of money. It teaches them early about the importance of earning and helps them see how the economy works. They learn about their own financial growth too.

Benefits of Early Work Experience

When teenagers work early, through jobs or internships, they learn how to value money. They figure out budgeting and saving for things they want in the future. This early dive into the working world also builds a strong work ethic.

Getting paid for work at a young age can lead to smarter financial decisions later in life². It’s important to teach teenagers how to use their money. They should spend some, save some, and share some. Setting and planning for savings goals teaches them about preparing for future needs¹⁶.

Starting a Micro-Business

Encouraging kids to start their own small businesses brings many advantages. It helps them be creative and learn to manage money². They learn to think carefully about their business plans. This is a key skill for managing finances better. And they become smarter about spending when they understand the trade-offs².

Running a small business teaches kids about the value of entrepreneurship. They learn from real life, whether through a lawn care business, making crafts, or tutoring. These small ventures teach them about earning, investing, and the joy of making their own money.

financial teaching methodsreal-life money experiences

Investing Basics for Kids and Teens

Teaching kids and teens about investment secures their future financially. They learn early about growing their money and planning for the long term. It’s easy to get them started on this learning path.

Saving in Custodial Accounts

Custodial accounts such as Custodial Roth IRAs or UGMA/UTMA are great first steps. A Custodial Roth IRA lets kids with income invest and get tax perks. When kids become adults, at 18 or 21, they take over their accounts. However, a Custodial Trust Account is more flexible but doesn’t give the tax benefits of a 529 plan for school savings.

Opening a savings account teaches about banking, but investing in stocks or ETFs can grow their money more. Although 39 percent of kids save money, only 6 percent invest¹⁷. Using custodial accounts, children can see how investing really works.

Purchasing Fractional Shares

Fractional shares are a smart move for new investors. Companies like Fidelity let kids open accounts with no fees or balance requirements. Your kids can own part of big companies without spending a lot. This teaches them about the stock market and how to spread their investments.

Encouraging kids to save early can lead to big savings. With a 10 percent yearly growth, saving $1,000 by age 10 could become $189,000 by age 65. Or even $790,000 by age 80¹⁷.

For fun learning, check out games and interactive apps. These simulate real-world trading which helps kids think critically and understand long-term investing. Starting these lessons early turns kids into wise money handlers.

Source Links

1. https://www.schwab.com/learn/story/9-tips-teaching-kids-about-money
2. https://www.tiaa.org/public/learn/life-milestones/teaching-kids-about-money
3. https://www.investopedia.com/financial-education-resources-kids-5216826
4. https://lessonbee.com/blog/8-ways-to-teach-your-preschool-kid-about-money
5. https://www.ramseysolutions.com/relationships/how-to-teach-kids-about-money
6. https://keepemthinking.com/2022/03/fun-ways-to-teach-money/
7. https://hireandfireyourkids.com/blog/teaching-kids-about-money/
8. https://www.callawaybank.com/using-allowances-to-teach-children-responsible-money-management
9. https://blog.getintocollege.com/allowances-a-great-way-to-teach-financial-literacy
10. https://www.cmosc.org/teaching-children-about-giving-back/
11. https://www.ml.com/articles/6-tips-for-raising-generous-kids.html
12. https://www.securegive.com/5-reasons-you-should-teach-children-generosity/
13. https://www.fitzsimonscu.com/financial-literacy-games-for-children-and-adults/
14. https://www.usbank.com/financialiq/manage-your-household/personal-finance/tips-for-parents-opening-bank-account-for-kids.html
15. https://www.bankrate.com/credit-cards/advice/teaching-kids-difference-between-debit-and-credit/
16. https://www.merrilledge.com/article/teaching-kids-about-money-financial-responsibility
17. https://www.bankrate.com/investing/how-to-teach-kids-about-investing/