Teaching Your Child about Managing Money

Posted on October 31, 2018 by CHS

Children begin to develop an understanding of money at an early age. Preschool aged children begin by learning the basic purpose of money when they trade one toy for another, bargain with each other, and pretend to purchase items during play. During these years children are also learning concepts about math that include: numbers (quantity), numerals (number symbols), and basic addition and subtraction. Parents can build on these skills and use them to teach children the basics about managing money.

Three to Five Year Olds
At this age, children do most of their learning through play, but they are also observing adults as they shop for groceries, pay for haircuts, buy clothes, and go to the bank. Parents can talk to children about how they receive pay for doing work, and that money is what they use to buy the things their family needs, like food and clothing. Include your child as much as possible during these transactions and use money instead of credit cards so she can learn how money is exchanged. For example, at the register, point out the total amount owed to your child and say, “Do you see those numbers? They say that I owe eighteen dollars and fifty cents. I am going to give her twenty dollars, and because that is too much money she will give me change.”

Let your child see you paying the bills and include her in managing the household budget when possible. Your child can help make a grocery list and cut out coupons for grocery items. She can also help select items to sell at a garage sale and offer ideas for prices. At the grocery store, she can hold coupons and help look for the items on sale, or she can add up the prices of items on a calculator while you shop. Participating in these everyday transactions helps your child learn about money and provides an opportunity for you to introduce new vocabulary like: dollar, coin, bill, penny, nickel, dime, quarter, price, cost, change, discount, deposit, paycheck, salary, coupon, addition, and subtraction.

Save empty containers from food products such as cereal boxes, egg cartons, tea containers, granola bars, etc. Add a box decorated like a cash register, expired coupons, and play money to set up a pretend grocery store. You can create other pretend stores like a pet shop, hair salon, restaurant, or a bank. Pretend play allows children to explore the information they have observed from watching adults while they practice math skills.

Parents can introduce real money to children by examining it with magnifying glasses to look at the pictures and writing that can be found on bills and coins. Collect spare change in a jar that children can use for sorting. They can learn how much each coin is worth, wrap coins in paper rolls to take to the bank, or clean pennies with a little white vinegar, salt, and water (they should scrub pennies with vinegar and salt first, then rinse them in water). Children should wash hands after handling money.

Books are also a wonderful way to introduce children to money and how to manage it. Visit your local library and look for these books for three to five year olds: Spend It! by Cinders McLeod, Earn It! by Cinders McLeod, Lemonade in Winter by Emily Jenkins, Bunny Money by Rosemary Wells, Little Critter: Just Saving My Money by Mercer Mayer, and Sheep In a Shop by Nancy E. Shaw.

Six to Twelve Year Olds
Once children enter kindergarten and elementary school, they usually understand that money is for purchasing goods, and that it is earned by doing work. This may be a good age for starting an allowance with your child. The Credit Counseling Society recommends setting a weekly allowance of fifty cents or one dollar per age. That means that a six year old would receive either $3.00 or $6.00 a week. An allowance can be given for completing chores or special projects. If you believe that doing chores should not be a means for allowance since chores are a shared family responsibility, then provide other opportunities for your child to earn money by doing something above and beyond what you expect. This might include cleaning out the garage, mowing an elderly neighbor’s lawn, or washing the family car.

Your child will need some kind of piggy bank or jar for collecting her allowance. If you want to teach your child how to divide her money into what she will spend, what she will save, and what she will share, then she will need three jars or envelopes. The Spend, Save, and Share System can help your child learn to think of money in both the short term and long term. It also teaches your child to think of ways to have a positive impact on her community through donation. When she receives her allowance you can help her divide it by percentages. For example, the allowance could be split into 50% to spend, 40% to save, and 10% to donate to the charity of her choice.

Talk to your child about the difference between purchasing items that are needed as opposed to purchasing items that she wants. Your child will make purchasing mistakes, but it is better for her to learn from those mistakes now, rather than later. Encourage her to spend wisely by saying, “Let’s look at the whole store before you decide on what you want to buy,” or “if you buy that now, how much money will you have left?” This gentle guidance can help your child decide what is truly worth her money.

Consider opening a custodial bank account for your child by the time she is eight years old. A simple savings account can provide a place to save larger sums of money that your child might receive as a gift on birthdays or holidays. The gift could be divided in half, with half to spend and the other half to put in the savings account. Starting a savings account also offers the opportunity to teach your child about how bank accounts earn interest. Encourage your child to keep track of her money in a notebook or diary. This is good practice for budgeting and eventually balancing a checkbook.

There are a number of board games that teach children about money in an entertaining way. Schedule a board game night once a week after dinner and enjoy some family time together. Try one of the following games: Buy It Right, Pay Day, Money Bags, The Allowance Game, Exact Change, Monopoly, Life, Thrive Time for Teens (budgeting), Act Your Wage (staying debt-free), and The Stock Exchange Game. Kids can also collect state quarters or coins from a particular year as a hobby. The United States Mint has a kids’ site (link below) that includes games and coin-collecting fun.

Visit the library to find books you can read together to build your child’s understanding of money. The librarian can make suggestions based on the age of your child, or you can start with one of these:
The Berenstain Bears’ Dollars and Cents by Stan Berenstain
Lily Learns about Wants and Needs by Lisa Bullard
Those Shoes by Maribeth Boelts
The Coin Counting Book by Rozanne Lanczak Williams
The Penny Pot by Stuart J. Murphy
Once Upon a Dime by Nancy Kelly Allen
Pigs Will be Pigs by Amy Axelrod
Fraction Fun by David A. Adler
National Geographic Kids Everything Money: A wealth of facts, photos, and fun by Kathy Furgang.

References and Resources

• Sagevest Kids Finance Activities by Age
• Keeping a Money Diary
• Tips, Explanations, and Learning Activities by The Mint
• The 5 Most Important Money Lessons to Teach Your Kids
• How to Teach Kids about Money from Toddlers to Teens
• Online Games and Apps that Teach Kids about Money
• 5 Steps Toward Raising Financially Savvy Kids
• United States Mint Kids Site (Games and Coin Collecting)
• Credit Counseling Society
• Investopedia: Spend, Save, and Share