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Financial Freedom Starts Young: Master the Art of Teaching Kids Finance!


Hey there parents! Teaching kids finance might sound like a daunting task, but trust me, it's one of the best gifts you can give to your children. As a financial educator focused on teaching kids and families the basics of personal finance, I've seen firsthand how instilling a positive money mindset early on can pave the way for a secure financial future. There’s also plenty of research that we’ll discuss showing this as well! We'll then explore the main topic of the article - practical tips and tricks to make the journey of teaching kids finance not only educational but also enjoyable.


 

Table of Contents

 

children camping


Why Start Early?


Understanding the Developing Brain

Research studies conducted by neuroscientists from New York University emphasize the incredible plasticity of a child's brain during the early years. According to a study published in Psychological Science, children are most receptive to learning between the ages of 3 and 7, a period when their brains are rapidly forming neural connections (1). Introducing financial concepts during this crucial developmental phase means that children are more likely to absorb and retain this knowledge, providing a solid foundation for future money management skills.


Forming Healthy Financial Habits

The habits children develop during their early years often shape their behavior in adulthood. A report by the University of Cambridge revealed that money habits are typically formed by the age of 7 (2). Teaching kids finance at a young age enables them to establish positive money habits, such as saving and budgeting, which are likely to persist throughout their lives.


Advantages of Early Financial Education

Early exposure to financial education offers numerous cognitive and social benefits. Studies have shown that children who receive financial education demonstrate improved critical thinking, decision-making, and problem-solving skills (3). Additionally, early financial education nurtures a sense of responsibility and helps children comprehend the value of money in real-life contexts. This understanding not only prepares them for financial independence but also equips them to make informed financial decisions as adults.

By starting financial education early, parents empower their children with essential skills that contribute to a lifetime of financial well-being.




Be a Financial Role Model


Now that we know WHY to start teaching kids about personal finance at a young age we can then start to look at the HOW. The easiest way to start is just by being a good role model for your kids!


The Power of Parental Influence

Mother teaching children

Parents are the primary influences in a child's life, and this includes their attitude towards

money. It doesn’t take much to demonstrate healthy financial habits at home, especially when the kids are young! Simple things like showing them you stick to a budget, or informing them when you invest or save some money, will go a long way! And this gives your kids a tangible example to follow as they grow up and have their own money to invest, save, and spend!


Leading by Example

Engage your kids in everyday financial activities. Take them grocery shopping and explain how you budget for necessities. Let them see you save for a family vacation or for emergencies, reinforcing the importance of planning ahead. Don’t be afraid to discuss with your kids what you’re doing with money and why. Too often we are scared of talking to our kids about money, when in reality we should be showing them the good things we do with our finances, and letting them learn from our mistakes!




Make Learning Fun


Age-Appropriate Activities

Teaching kids finance doesn’t have to be boring! For younger children, use games like “Grocery Store Pretend Play” to teach them about different coins and their values. For older kids, board games like Monopoly can impart valuable lessons about investments and strategy. If you’re looking for a curriculum to teach your kids finance that includes recommended activities, our My First Finance Book FREE teaching materials might be a perfect fit for you!


Educational Games and Apps

Explore a variety of educational games and apps designed to teach kids finance in an interactive and entertaining way. Apps like “PiggyBot” and “Bankaroo” help kids manage allowances and set savings goals, making learning about money a fun experience. There’s also interactive books for young kids, like our My First Finance Coloring Books, which are specifically designed for young kids to learn about personal finance while staying engaged with coloring.


Creative Integration into Daily Life

Transform routine activities into learning opportunities. Cooking dinner together? Discuss the cost of ingredients and meal planning. Planning a family outing? Involve your kids in budgeting for the trip, teaching them about expenses and saving for leisure activities. Keeping your kids informed and involved while you live your daily life is a fantastic way to teach them about personal finance in a practical and fun way!




Talk Openly About Money


Importance of Open Communication


Stressed person

If you’ve read this far, then you can probably tell we very much believe in an open dialogue with your kids about finances at home. We also know this isn’t always easy, and sometimes money is tight. But as long as you’re able to stay rational and create a plan to get out of the situation, you should involve your kids in your money decisions even when things are stressful.


When times are good, it’s just as important to keep them informed. Show your kids when you make an investment, when you pay off your credit card, or check your budget. Something as simple as talking to your kids about why you made a logical decision to use a specific credit card in one situation instead of another can leave an incredible impression on your kids!


Addressing Common Misconceptions

Kids might have misconceptions or fears about money. Sometimes this comes from their school, or their friends' parents. Sometimes it comes from past habits they’ve learned from us. Either way, it’s ok for them to be nervous about money. Just be patient and understanding, and let them know you’ll be there as they learn and you’ll help them grow! They won’t go broke for life if the lemonade stand they started as a ten year old doesn’t turn a profit, I promise!




Allow Kids to Make Financial Decisions


Benefits of Financial Responsibilities

Giving kids financial responsibilities, like managing their earned income (allowance), teaches them about budgeting and decision-making. It instills a sense of ownership and accountability, nurturing their independence and financial confidence.


Setting Up a Small Income System

We don’t really like the term allowance, it implies getting money just because. We prefer to have “earned income.” Your child may earn their income through doing the same chores around the house that they were already doing, but now the focus is on them providing value to the family. This then sets a baseline for how income is earned out in the real world as well! We make money by providing value to someone else or to a business, so why not learn the lesson early that money doesn’t show up for free!


With their earned income, you can also set up all sorts of fun activities and learning lessons! For instance, you can set up a small store in the house with fun items or activities they can buy. Use this as the baseline for spending in the real world, and then practice following a budget! We have more ideas under our free section on our website.




Teach the Value of Thinking About the Future


Importance of Investing and Saving

Why do we invest and save as adults? Because we’re thinking about the future right? We might invest into our retirement accounts because we don’t want to work through our golden years, and we might keep a hefty savings account in case an accident happens in the short term.


Let’s impart those same ideas on our kids. Instead of spending every dollar they earn, help them understand the importance of thinking about the future. Depending on their age, retirement might be too far out for them to really comprehend, but they can certainly begin saving money to buy Christmas presents next year. Or they can invest some money in the stock market to use when they go to college or trade school! Either way, making sure your kids are thinking about the future is extremely vital for their long term financial goals!


Setting Up a High Yield Savings Account


Magic piggy bank

Helping your child set up a savings account is a common practice, however most people skip the easiest way to teach them about investing: setting up a high-yield savings account! We like to call these Magic Piggy Banks, especially when teaching younger children, but they’re a fantastic way to teach kids about interest at a young age. Plus, they can actually earn a few more dollars with their saved up income then they would in a regular savings account or even an actual piggy bank!


One way that we’ve also seen success with this is a matching program for cash. If you are using play-money to teach your kids about real money, and then your kids store their play-money in a piggy bank, you can put real money into a High Yield Savings Account for them! That way they can see their money growing each month without you having to worry about them losing actual cash!




Conclusion


Teaching kids finance is not just about dollars and cents; it's about empowering them to make informed financial decisions throughout their lives. By starting early, being a positive role model, making learning enjoyable, fostering open communication, and allowing them to make financial choices, you’re equipping your children with essential life skills.

So, parents, dive into the world of teaching kids finance with enthusiasm and creativity. Your efforts today will undoubtedly shape a financially responsible and confident adult tomorrow. Happy teaching!



 

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