6 Ways To Teach Kids About Money

To set up the next generation for financial success, we need to teach kids healthy money habits at a young age. Here are some ways to teach them spending and savings lessons.

1. Wants vs. Needs

This is a hard concept for kids to grasp. It’s even hard for us adults to put money aside for a bill rather than go on a fun vacation. Instant gratification from a brand new toy is oftentimes what a child wants at that moment but quickly forgets about it within a few days. To start building their understanding of money, they should define wants and needs for themselves.

Needs are essentials for us. This includes food, clothes, shelter, education, etc.

Wants are non-essential. They are extra things that make us happy but we can do without. Examples are candy, concert tickets, the latest smartphones, toys, etc.

One way to start teaching them this concept is by having them go through your own home and determine what a needed purchase was versus a wanted purchase. This opens the door for them to ask questions about why certain items need to be purchased and allows you to explain the reasoning behind “want” purchases. Keep an open mind. This can seem difficult, but being honest with your children, even about spending mistakes, keeps the dialogue open.

2. Let Them Earn Their Own Money

Another way for kids to learn the value of money is to have them start earning their own. In your household, you can have them earn money by doing basic chores around the house. This allows them to peek into their future when they will have to do tasks at their job to get paid.

To fully understand the concept, it might be best to have each chore paid out when it is completed rather than giving them a set weekly allowance. Sometimes a weekly allowance guarantees they will get paid whether or not the tasks are done. Instead, create a chore list that allocates an amount worthy of the time spent.

For example:

• Taking out the trash = $1
• Dishes = $5
• Picking up their room = $3

By knowing how much effort went into each dollar earned, they may think twice about how they want to spend it. Plus, let’s face it parents, you get some much-needed help around the house.

3. Open a Savings Account

Like saving money for you is important, it is important for them as well. If your kids are younger, the classic way to have them start saving money is by giving them a clear jar. This way, they can visibly see the jar as it fills up with dollars and coins. If your kids are a bit older, consider upgrading them to their very own savings account with a financial institution.

Practicing saving money while they are young, will create healthy habits when they are older.

4. Set Savings Goal

Have you noticed you are more likely to save if you have a goal in mind? Once your child has a safe and secure place for their money, they need a reason to save. The savings goal can be big or small. It can be saving up for a $50 video game or it can be saving up for a $300 brand new video game console.

Help them pick a goal and teach them how to reach that goal. For example, if they are saving up for the $50 video game and earn $10 a week in chore money, explain how in 5 weeks, they will be able to afford the game as long as they put their money in their savings account. If they find other ways to make money, like mowing the yard for their grandparents, then they can reach that goal faster.

Once they reach that goal, help them withdraw their money and take them shopping.

5. Track Their Spending

That savings goal may be harder to reach if the child decides to spend their money instead of saving. If they have a goal to buy a video game in 5 weeks, make sure you explain it won’t be possible if they decide to buy a $5 toy and a $3 bag of candy today. This is where the “wants vs. needs” conversation may need to expand.

The toy and bag of candy are wants as well as the video game. As long as there are no “needed” purchases at this moment in time, your child can choose one of these wants. They just need to determine which they would rather have or understand that if they choose to buy the toy and candy today, it will put off their savings goal of buying the new video game in 5 weeks.

Understanding how spending money affects their long-term savings is a great lesson to learn at a young age.

6. Set a Good Example

All of this is easier said than done, right? We are all guilty of occasionally putting a short-term want in front of a need or extending a long-term savings goal due to unnecessary spending. Yet, kids look to us as examples. If we practice healthy money management habits now, it makes teaching kids easy and sets them up for success.