Money is so often a taboo subject that it can feel difficult to impart financial lessons to our kids — particularly when they’re very little. How do you teach young children and toddlers about money, while also protecting them from your money stresses?
Money management is just like reading (or any other complex skill), in that your kids need to learn age-appropriate little lessons as they take the path to proficiency. You don’t expect your kids to suddenly be able to read without first learning and practicing their ABCs, so you shouldn’t expect them to suddenly understand how to handle money because they reach a certain age. Instead, you need to start early.
Here are four money lessons you can teach your kids so they’ll be on the path to financial literacy — before they’ve even entered elementary school.
1. Budgets are Important
Even kids as young as three can learn basic budgeting, which is a skill they’ll always need. Have your child allocate their money (from allowances, birthday money, etc.) into at least three categories: to spend, to save, and to give.
This will get them used to the idea of not spending every penny they get. It’ll also help them understand that saving money allows them to buy bigger items, and that giving money to a charity is (and feels) good.
2. Money Doesn’t Grow on Trees
For small children, it often seems as though grown-ups simply have to go to the bank or the ATM to get more money. They only see you making withdrawals, which they don’t connect with your time at work. When you do take them to the bank, explain that the bank is holding the money you’ve worked for, and that you don’t have unlimited money available.
You can make this lesson more concrete by allowing your children to work for money. While many parenting and money experts debate whether allowances should be tied to chores, you can always offer to pay your kids for chores above and beyond what they’re already expected to do.
3. It’s Okay to Make Mistakes
As parents, we often want to shield our kids from disappointment, but that can be a big mistake when it comes to protecting them from the consequences of overspending.
If your child is excited to spend all her cash on funnel cakes and lemonade at the fair — and is later disappointed to realize she now doesn’t have enough money left to play a game or ride a ride, that’s actually a very good lesson about budgeting. It might be tempting to give her more money to play Whack-a-Mole, but it’s better in the long run for her to realize that money is finite and the Bank of Mom and Dad is not there to bail her out of money dilemmas.
4. There’s a Difference Between Wants and Needs
This can be a tough concept for many adults to grasp, let alone small children who feel like they absolutely must have the latest Thomas the Tank Engine toy. You can make this a game you play regularly, by asking your child what they need to live vs. what they want to have. Share your own specific wants, too (like that trip to France you’ve always dreamed of), and talk about what you each can do to someday have the things you want.
With my three-year-old son, I’ve made recognizing wants at the store into a game. I’ll let him look at the toy he’s enthralled by for a little while, and then I tell him it’s time to wave bye-bye to the toy. Although he sometimes has tears in his eyes while waving bye-bye, he knows that he can’t always have the things he wants. (I also model this behavior when I am tempted by things I don’t need — although I do feel a little silly waving bye-bye to iPhones and leather boots in front of my son.)
The Bottom Line
Financial literacy is a long-term process that needs to start very young. Teaching your children money lessons, and letting them feel the consequences of their money decisions, should start as soon as your kids are able to understand what money is.
What have you taught your pre-K kids about money?
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