Simple, Practical Money Lessons for Young Children

In our rapidly changing world, it's now more important than ever for young children to establish good money habits. An important life skill, teaching children about money from an early age will not only help them build a good foundation when it comes to money matters, but also ensure they can have a healthy and prosperous financial life in the future.

Starting Early

From five to seven years old, children are usually ready to learn about money. According to a 2013 study by Cambridge University, most children by the age of seven would know how to recognize the value of money, understand how money can be exchanged for products and what it means to earn money through work.¹ The study further explained that parents play a pivotal role in a child’s financial literacy and kids learn best mirroring by their parents’ money habits.

"The 'habits of mind' which influence the ways children approach complex problems and decisions, including financial ones, are largely determined in the first few years of life,” observed co-author of the study, Dr David Whitebread of Cambridge University. “Simply imparting information is now recognised as being ineffective in this area. By contrast, early experiences provided by parents, caregivers and teachers which support children in learning how to plan ahead, in being reflective in their thinking and in being able to regulate their emotions can make a huge difference in promoting beneficial financial behaviour.”

Money Concepts

How do parents go about talking to children about money? Parents can first start with money concepts – how people earn, spend, save and share money. However, keep it simple and show your child how the money concepts relate to them.

• Concept of earning - relate it to how children receive money (why were they given the money from others? what did they do in order to get the money?)
• Concept of spending - relate it to how children decide to use their money (what would they like to buy? how much should they use for that item they want?)
• Concept of saving - relate it to how children can set aside their money for future use
• Concept of sharing - relate it to the idea of charity (sharing money with people who are less fortunate) ¹

In addition to these, you can also teach them about being responsible with money (for example, allocating money to pay taxes and bills) and being grateful with how money makes their lives easier.

Life Lessons

Teaching concepts alone may not be sufficient as children learn best through example and daily application. Hence, parents should also find fun and creative ways to incorporate money lessons into their children’s daily life.

“Children learn mainly through indirect teaching by observation and example,” Sharon M. Danes, PH.D., Professor, Department of Family Social Science and Tammy Dunrud, Administrative Fellow, 4-H Youth Development said in a 2005 paper they did for the University of Minnesota. “Parents can employ observational learning through intentionally planned learning activities. As you teach children about money, they can learn about responsibility; family values and attitudes; decision-making; comparison-shopping; setting goals and priorities; and managing money outside the home.”

“Intentionally-planned learning” activities” as the experts above suggested, are simply the things you do every day with your child that you can enrich with money lesson. Here are some ideas:

• Shopping

Mall outings can be turned into a wonderful teaching experience. While shopping for groceries or clothing, you can show your child the different prices of the same thing and have them compare the different values. You can also get your little one to pay for something to let him experience what it is like to use money to exchange for the things he needs. For older children, you can show them the difference between wanting something and needing something. For example, advise them that they already have seven pair of socks at home, thus they don’t need another and money is better spent on something they need like a pair of new shoes because their old pair is worn out. This teaches them the value of money and the importance of self-discipline to discern what is more important.

• Keeping a savings jar

A piggy bank, a savings jar or anything that can be used to hold coins and banknotes are wonderful teaching tools to show children how money can grow. Most children like collecting something, so turn saving money into a collection game. Give them a coin each day and let them deposit it into the piggy bank or jar. At the end of the month, empty out the jar and count the money. You can take your kid out to buy something with the money. This teaches them to appreciate the practice of saving money. When they are older, you can continue teaching them different saving strategies by opening a savings account for them at the bank.

• Chores and payment

One of the simplest ways to teach kids about earning money is through giving them house chores and upon completion, ‘paying’ them money.  Some parents do not like this method as they are concerned that their children will only help out at home if there’s something in it for them. To prevent this, it’s important to set up a proper system for chores and rewards. "When done effectively, providing payment for household chores and tasks can be a great teaching tool," says goHenry, a blog dedicated to helping kids learn about money. "But if you’re still concerned about putting such a system in place in your household, you may want to consider providing a small basic allowance each week, with potential for further money for completing additional tasks. This takes away from the 'only work worth doing is work you get paid for' stigma, and allows your child to work out certain financial lessons for themselves."²

References:

¹www.moneyadviceservice.org.uk

²www.gohenry.co.uk