Understanding money, its uses, its value, and how to save it are important life lessons. Teaching financial literacy to your child will happen naturally. Children are naturally inquisitive, and eventually they will come to a point where money will need to be explained.
You can begin to teach children financial literacy at a young age. By the time your child is two to three years old, they have a strong habit of asking for things. They could ask for a drink, their blanket, or for a candy in the grocery aisle. When they begin asking you to buy things, this is the perfect time to introduce money to them. This is a dual purposed lesson: you are teaching them what money is as well as teaching them about stealing. Children are innocent when it comes to taking things. If they do not understand “cost” and “payment”, they will take things without the understanding that it is wrong. Teaching financial literacy between two and three years old will help them grow in their understanding of what money is, does, and requires.
The first step to teaching financial literacy to children is allowing them to buy things. That’s right, get those little shoppers shopping! Discuss an item to purchase, go to the store, and purchase it. Refrain from using a credit card, because it will not help them understand money. A great way to have your child purchase is to go buy an ice cream, have the cash ready, give it to your child, and allow them to pay. Show them that different pieces of money look differently. Teaching value will be discussed later. For the beginning steps, imprint the idea that you need to trade money for something. To continue the lesson, play store with your child. Children often learn through play, and “store” is a fun game for them! Use items in your house, or toys, and pretend to be the shopper. Give your child money to pay for the item. Reverse roles, showing that people receive or give money at different times. Other games could include coin or dollar matching or restaurant. These activities will set the foundation for your child’s financial literacy.
Another step in teaching financial literacy to children is teaching its value. Showing your child cost and savings will help them understand that money and things have different worth. Involve your child in clipping coupons. This will put value on your job as a food provider, as well as teach your child the value of saving money for other things. You could point out two competing items in a store and explain their differences in cost. If you want to take it a step further, you could even compare and show how much money each item costs! This will reiterate the value of saving money, comparing products, and having extra money for other things.
Finally, when your child is ready, you can begin teaching financial literacy through savings. This could be done through several different mediums or all of them combined from first grade and on. You could offer your child a “piggy bank” to hold any spare change that they find. In addition to this, any money received for birthdays, holidays, from the tooth fairy and so on can be placed in their container. If you feel like your child is ready, visit a bank and open them an account! This is wisest to do when they can read their own name and understand numbers and values. Otherwise the money will disappear and they won’t have a point of reference for what has become of it. This is also the time when they can begin to make money, whether through chores, allowance, lemonade stand or services provided to someone. If they want to save for a certain item, create a fundraiser type graphic and color it in as they earn more money. This will help them understand how money is made, saved, and grows.
The bottom line for parents is to be open about money. Chances are your kids are with you when you are shopping in day to day routines, so include them and start the valuable conversation about financial literacy.