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Laying the Foundation: The Best Age to Start Money Lessons for Kids


Hey parents!  In today’s article I want to talk about a question I get a lot - “when should I start teaching my kids about money?”  The answer, to most people, is shockingly young!  We’ve posted about it before, but we know that kids start conceptualizing finance when they're around 3 years old.  And by 7 they have a pretty good grasp of individualized economics - i.e. exchanging money or work for something they want.  So today, let’s take a look at some ways to help guide that discovery and turn conceptual thoughts into a reality of future financial success!


 

Table of Contents

 


young child learning about the basics of finance


What’s The Best Age to Start Teaching My Kids About Money?



The simple answer, of course, is today!  



As we talked about in the intro paragraph, we know that kids start interpreting financial concepts around the age of 3.  While they certainly aren’t picking up macro-economic trends or anything complex, what they are beginning to understand is that they can exchange their time and effort for a positive result.



For instance, a 3 year old definitely understands that if they make a funny joke or do something fun, they can make mom laugh.  This makes them happy and feel good!  How much of a leap is it from them understanding that to (in the future) understanding that they can do chores to earn money and then buy things? 



I write this to say, it’s very unlikely that wherever you are in your child journey that it’s too early to start talking about finance and financial concepts with your kids!  They pick up on this stuff way earlier than we would expect, so it’s important to be thinking about it now!



In the rest of the article I’ll walk through some starting points for different age groups, so no matter where you are on your journey you’ll have a place to start!






young kid learning about money


Understanding the Basics (Ages 3-5)



Starting Young


Key Points:

  • Identify Coins and Bills: Help kids recognize and name different coins and bills.

  • Earning Money: Introduce simple chores to earn small amounts.

  • Saving in a Piggy Bank: Teach the concept of saving money for future use.



When it comes to laying the foundation for money lessons for kids, starting with the youngest age group, around 3 to 5 years old, is a golden opportunity. Children at this age are incredibly curious and eager to learn. The goal is not to overwhelm them with complex concepts but to familiarize them with the basic elements of money. 


You can start this journey by introducing them to different coins and bills. This can be a fun and interactive activity, like a game where they identify and name the money in a wallet or purse. It's an engaging way to make them comfortable with the currency and understand that these are more than just shiny objects or pieces of paper.


The concept of earning is another critical component at this stage. Introducing simple chores, like tidying up toys or helping set the table, can be linked to earning small amounts of money. This is not about the monetary value but about instilling the idea that money is earned through effort and work. Then comes the exciting part - saving! 


Using a piggy bank is a classic and effective tool in teaching kids to save. It's visually appealing and tangible for young minds. They can see their money accumulating over time, which brings a sense of achievement and understanding of patience and delayed gratification.



Activities for Engagement:


  • Play Store Games: To make learning about transactions fun, turn it into a game. Set up a small ‘store’ at home where your child can use play money to ‘buy’ items. This introduces the concept of exchange – giving money to get something in return.

  • Set a Simple Savings Goal: This could be as straightforward as saving for a small toy or a special treat. It teaches goal setting and the satisfaction of reaching a goal through saving. This goal-oriented approach to savings will be a cornerstone for more complex financial concepts as they grow older.




By starting money lessons at a young age, you’re not just teaching your child about currency, but also laying the groundwork for healthy financial habits that will benefit them for a lifetime. Remember, the key is to keep it fun, simple, and interactive, tailoring the lessons to their level of understanding and interest.






understanding money and budgeting at a young age

Building Money Skills (Ages 6-8)



Developing Decision-Making Skills


Key Points:

  • Earning Income: Start a system of earning and saving through “work”..

  • Needs vs. Wants: Teach the difference between essential and non-essential items.

  • Introduction to Budgeting: Use simple tools to plan expenses.



The age group of 6 to 8 years is an exciting time for kids, as they begin to understand the world around them with more clarity. This period is ideal for introducing more structured money lessons for kids. A great starting point is establishing an earned income system. 


This is basically an allowance system, the core nuance being that the kids have to earn the allowance!  We usually recommend picking 2-3 of the more difficult (or less desirable) chores around the house and tying their income to the actual completion of those chores!  We don’t think that it should be tied to completing all chores though, they’re still part of the family and communal work must be done!


Giving the kids an opportunity to earn income is a  powerful tool for teaching them about earning, saving, and the responsibilities that come with handling money. 


Another fundamental concept to introduce at this stage is the difference between needs and wants. This lesson is crucial in helping kids make informed decisions about spending. Needs are things we must have to live, like food and clothing, whereas wants are things we would like to have but are not essential. Engaging children in discussions about this during shopping trips can be very enlightening and helps them to start thinking critically about spending.


Budgeting is another skill that can be introduced at this age, though in a very simplified form. It can start with something as simple as planning a family activity, like a movie night or a small outing. Allow the child to participate in working out the costs and understanding the limits of what can be spent. This practical approach to budgeting can be both fun and educational, laying the groundwork for more complex financial planning in the future.




Practical Exercises:


  • Involve in Family Shopping Decisions: Let your child be a part of the decision-making process during shopping. This could involve choosing between different products and understanding why one might be a better choice over another, considering factors like cost and necessity.

  • Plan a Small Budgeting Project: An activity like planning a weekend outing can serve as an excellent project for kids to understand budgeting. Let them decide how to allocate a set amount of money for different activities. This teaches them to balance fun with financial limits.




By incorporating these lessons and exercises, children in the 6-8 age bracket will not only learn the basics of financial management but also develop critical thinking skills related to money. They will start to appreciate the value of money and understand the basics of budgeting and decision-making, which are essential skills for their future.






family working together on saving

Enhancing Money Management (Ages 9-12)



Deepening Financial Understanding



Key Points:

  • Bank Accounts and Interest: Introduce the concept of saving in a bank and earning interest through high-yield savings accounts.

  • Basics of Investing: Explain simple investment concepts in an age-appropriate manner.

  • Financial Decision-Making: Discuss the consequences of good and poor financial choices.



As children enter the 9-12 age bracket, their capacity to understand more complex concepts of money management enhances significantly. This is the perfect time to deepen their financial understanding. 


One of the most exciting steps for kids in this age group can be opening their first savings account. This experience introduces them to the banking system and the concept of earning interest. It's an excellent way to teach them that money, when saved wisely, can grow over time.  Just make sure it’s a high-yield savings account with a competitive interest rate!  

Note:  I’d recommend looking into the Marcus Fund by Goldman Sachs.  I won’t link it here because I don’t want anyone thinking we’re affiliated, this is just the overall best HYSA on the market for kids right now in my opinion.  SoFi is currently offering a better rate, but they don’t tell you in the big-print that you have to have a direct deposit set up to get the high rate, if you don’t they give you well below market rates for HYSAs.  I don’t know many 10 year olds receiving actual paychecks, so that’s why I recommend Marcus Funds.


Introducing basic investment concepts is also appropriate at this stage. While complex stock market strategies might be too advanced, the basic idea of investing - such as buying shares in a company - can be taught through simple games or simulations. 

These activities make learning about investments fun and accessible, laying a foundation for more advanced concepts in the future.


Another crucial aspect to cover is the long-term impact of financial decisions. This is a great age to start discussions about saving for larger goals, like college. It helps them understand the importance of saving over time and the impact of both good and poor financial decisions.



Meaningful Activities:


  • Open a Savings Account: This is a practical step in teaching kids about saving. Many banks offer accounts specifically for children, which can be an exciting way for them to learn about interest and the benefits of saving.  Or if you want them to earn interest, open a High-Yield Savings account like we discussed in the paragraphs above!

  • Play Investment Simulation Games: There are many kid-friendly games and apps designed to teach the basics of investing. These simulations can provide practical, hands-on experience in a risk-free environment.

  • For some ideas on what games to play, check out our article discussing 7 video games and how they can relate to teaching kids finance!  

  • Discuss Long-Term Savings Goals: Engage in conversations about long-term goals like saving for college or a car. This helps kids understand the concept of long-term planning and delayed gratification.



This phase in a child’s life is crucial for embedding a deeper understanding of money management. By engaging them in these activities and discussions, you’re not just teaching them about money; you’re equipping them with the skills to make informed financial decisions in the future. It's about building a mindset that appreciates the value of money and understands the impact of financial decisions.






teenager learning about finances and financial freedom

Preparing for Financial Independence (Ages 13-18)



Equipping for the Future


Key Points:

  • Managing a Checking Account: Teach about managing everyday finances.

  • Understanding Credit and Debt: Explain how credit works and the importance of avoiding bad debt.

  • Income, Taxes, and Employment: Introduce the basics of earning and managing income.



As teenagers approach adulthood, equipping them with the skills for financial independence becomes increasingly important. This age group, 13 to 18 years, is the ideal time to introduce more complex and practical aspects of financial management. 


One of the first steps is teaching them how to manage a checking account. This includes understanding how to make deposits, withdrawals, and monitor their account balance. It’s a fundamental skill for managing daily finances and prepares them for handling more significant financial responsibilities in the future.



Understanding credit and debt is another crucial lesson for teenagers. Explaining how credit cards work, the importance of paying off balances on time, and the consequences of falling into debt are essential topics. It’s important to teach them about interest rates, credit scores, and how their handling of credit can impact their future financial opportunities.



Introducing the basics of income, taxes, and employment is also key at this stage. Teenagers should understand how income is earned, the importance of taxes, and the basics of a paycheck, including deductions and net pay. This is also an ideal time to encourage them to take on part-time jobs or start small entrepreneurial ventures. Such experiences not only provide practical understanding of earning and managing money but also instill a sense of responsibility and work ethic.




Hands-On Experience:


  • Encourage Part-Time Jobs or Small Business Ventures: Earning their own money gives teenagers a real-world understanding of financial responsibility. It also teaches them about work commitment, time management, and the value of money.

  • Plan for Larger Personal Expenses: Involve teenagers in planning and budgeting for larger personal expenses, like a car or college. This helps them understand long-term financial planning and the importance of saving.

  • Learn to Use Financial Planning Tools: Introduce them to various financial tools and apps that can help manage their finances. This can include budgeting apps, online banking, and investment tracking tools.



Preparing teenagers for financial independence is not just about teaching them to manage money. It's about setting them up for a future where they can make informed, responsible financial decisions. By equipping them with these skills, you’re helping them build a foundation for a financially secure and independent adult life.







Conclusion

Remember, the key to teaching money lessons for kids is to start early and build upon their knowledge as they grow. Each child is unique, so adapt these lessons to fit their maturity and interest levels. The skills they learn now will benefit them for a lifetime.



 

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