As a parent, one of our big jobs is to teach kids about money. Whether we like it or not, at some point our kids will be out on their own in the world. And the last thing I want is for them to have to move back in years later because they couldn’t figure out the financial aspect of living on their own. Therefore, teaching them about money and budgeting is high up on our list of regular priorities. So, here are the 3 easiest ways we’ve found to teach kids about money, for long term retention. Hopefully!
1. BASIC money lessons
Since children’s brains process information differently than adult brains do, starting with basic money lessons is the way to go. This generally breaks down into creating information into smaller chunks. The more simplistic the concept the better, as these concepts lead to longer term retention.
One of the easiest first money lessons to teach kids is by using a simple piggy bank (doesn’t have to be a pig though!). This is due to the fact that kids are very visual learners. Just giving them something to physically see and touch begins the teaching process.
Some great ways to utilize this simple tool are:
- What each coin looks like
- How much each piece is worth
- How many of them it takes to make $1.00
Once they have that down, a good next lesson is about sales tax. This helps kids learn just how much things actually cost, besides what just on the sticker. In order to do this, you’ll need to know the sales tax rates in your city specifically so that you can teach them how to properly calculate it.
The best way I’ve found to do this is to take my kids shopping with me. I have them pick out something they want for educational purposes only. Much to their dismay, I’m not actually planning to buy them anything for this lesson.
Teach Kids About Money EXAMPLE
If my child has $10.00 with them and sees a toy that costs $9.99, they’ll assume they have enough to buy it. This is where sales tax lessons come in.
Our sales tax here is 7.25%. Therefore, the sales tax will cost an additional $.71 on top of the $9.99, for a total cost of $10.71. Which means if they only have $10.00, they’ll still need another $.71 to afford the toy.
Even if you happen to be one of the few who doesn’t have sales tax in your area, this is still a necessary lesson to be taught.
2. SAVING money
Once kids grasp the concept of how much they actually need to purchase the things they want, saving money is up next. This can be a very difficult concept for a lot of children (and adults too!), because they want everything immediately.
I like to start with smaller savings goals, because this can help keep them on track for their larger goals. This is where the piggy bank comes in great handy. Since they can physically see how much money they’ve saved, it’s easier for them to see how far they still have to go. I typically like to have them take out all of their money once a week and count it. This not only helps them get a better grasp on what each denomination is, but also lets them see how far they’ve come.
Once this basic saving skill has been grasped, it’s time to move on to compounding. This is usually a good lesson to be taught with larger ticket items, which is all age dependent. Typically, at this point, the piggy bank isn’t the best way to save for the larger items. So, this is the time when I begin talking to the kids about moving money into a high yield savings account. The rates vary, but they will be able to save more, faster, simply due to the magic of compounding.
Here is a great example of how compounding works with $100.00. If this is all they have to put in and the high yield savings rate is 4.35% (which is what ours is currently at), then at the end of one year they will have $104.35 in that account. This may not sound like much, but they just made an extra $4.35 without doing anything. Help them imagine how much more they could save if they add money monthly instead of just once a year!
3. make that MONEY, kids!
Now that they are more motivated to earn money, getting them to work for is up next. Getting children to do chores around the house is one good way to put kids to work so they can earn money. While this is not always my favorite way to teach them (because some kids can be so difficult sometimes), it’s a good place to start. How much you choose to pay them is entirely up to you. But I like to make the amount determinant upon how much of it they get done and how well the task was performed.
My other favorite way to have them earn money is by working for me. The perk of being a business owner is that I can outsource some things (that are age appropriate) to my kids. And most of the time, my kids prefer to do work for my business as opposed to chores. Therefore, my kids working for me helps teach them how to make some of their own money by working for someone else. Even if the someone else just happens to be their mom!
Teach kids about money summary
Overall, teaching kids about money can be as easy or as difficult as you make it. But, as a parent, it’s our job to give them the building blocks now can help ensure their long term financial literacy, and hopefully, success. To do so as efficiently and easily as possible, keep these skills in mind:
- Teach them money basics its worth (Plus sales tax)
- Learning how to save is crucial (Plus compounding magic)
- Teach them how to earn money
Once they have these foundational lessons down, there are plenty of more complicated financial lessons on the horizon. Oh the joys of parenting sometimes!
What are some ways you have successfully taught your children about money?