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How To Teach Kids About Money at Every Age! — Part 1

Want your kids to do better than you financially? Want them to keep a budget and invest in their future? Financial education is key.

A 2018 National Financial Capability Study found financial education correlated with good financial behavior like saving more, spending less than you earn, and being less likely to overdraw a checking account. It reported, “49% of respondents who received more than 10 hours of financial education report spending less than they earn, compared to 36% among those who received less than 10 hours.”

While it’s never too late to learn, the earlier you learn financial literacy, the greater the long-term impact. That’s why we've compiled money methods to teach your kids about finances at every age.

Toddlers

Kids start learning the moment they are born. Initially, this learning is imitation based, like following a parent’s lead to smile, track objects, and say their first words. Whether you know it or not, they are learning and picking up your habits.  Start early by setting a good example for them to follow later. The habits they’ll pick up include developing a budget at the grocery store, paying bills on time, and resisting impulse buys. When you discuss your decision-making with your toddler, they’ll learn how to make better decisions on what to (or not to) buy.

Preschoolers and Kindergartners

While kids at this age may not understand the value of money, they should understand the need to pay for merchandise. Kids learn from shared experiences, so include them in the grocery trip to help them understand this process. To make it more tangible, leave the credit cards at home and use cold hard cash.

By 7 years old, we develop basic financial behaviors, according to a University of Cambridge report. Before you panic and think your kids are already behind, they’ve probably addressed the basics: counting and exchange.

  • Counting
    This starts with simply counting objects, but should grow to include counting coins and dollars. Show kids the different kinds of coins and bills, allowing them to recognize the differences, group them, and then count that specific set.
  • Exchange
    One of the hardest lessons to learn at this age is that something must be given up to make a purchase. Money can only be spent once. To teach this, give a child one dollar to spend in the store and focus on choosing an item they really want. The child must hand over that dollar to purchase the item and experience the exchange of goods.

First to Fifth Grade

With a basic understanding of the purchasing power of money, your grade-schooler probably now wants more. It’s time to explain how to earn money, save it, and what opportunity costs are.

  • Earning money
    Unfortunately, your mother was right and money does not grow on trees. It is earned, and for kids at this age, it should be earned with chores. Rather than an allowance, reward work with personal funds. This teaches the ultimate lesson in finance: it takes work to earn money.  Kids who earn their allowance are in the majority. A Junior Achievement USA survey found 82% of the children earned an allowance for doing chores, getting good grades, doing homework and simply being kind to others at school and at home.
  • Saving
    It’s time for a piggy bank or maybe a mason jar, instead. A clear mason jar allows a child to see the money grow over time. It helps reinforce the benefits of saving. It’s also important to introduce children to the benefits of credit union and banks. Take them to the credit union or bank with you to deposit money, explaining the benefits of saving money there versus at home. Most banks and credit unions offer savings accounts for children — and many pay interest on deposits.  It’s also important to explain why you save: short-term needs, long-term goals and establishing an emergency fund. Provide scenarios to explain how you save and why. Honesty will help them learn and appreciate real-world finances.
  • Opportunity cost
    A fifth-grader should be able to understand opportunity cost, even if you don’t use that term. Opportunity cost is the loss of potential gain from other alternatives when one alternative is chosen. You can help your child understand impulse buying versus long-term goals. It’s a constant battle that we begin learning at this stage. Explain the difference between needs and wants, and how to prioritize them. We all have impulse buys, but we must learn to recognize them and limit them.

Next week we will look at ideas to teach sixth to twelfth grade about money.

(Partially reprinted from www.moneygeek.com)

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