I get questions all the time about what kids need to know, or not know, about money.
Full disclosure, I am not a parent. However I did work in a pediatricians office for several years and am a (in my opinion) pretty good auntie to others’ kids.
So let’s get into it. Do you need to talk to your kids about money and teach them financial literacy? Yes, 110% you do. You need to not just talk about it, but help your child interact with money and answer questions they may have about money.
Kids start to learn about things in two main ways: imitation and induction. Imitation is how children learn through their observations (ever catch your 3-year-old niece parroting your body language?). Induction is how they construct their world by drawing conclusions based on facts and patterns they see. This is why a young child might determine that all fish are named Dory because of a movie they watch. An adolescent may induct that wearing a certain brand of clothing makes them more likely to be perceived as relevant. That means you are also teaching your children about money and they are imitating and/or inducing things about money even if you think you aren’t.
How can you talk to your child about financial literacy so that they understand it? That depends. I’m sharing some ways you can start helping your child or teen interact with money in a way that works for them depending on what developmental stage they are in. Note, this advice is for neurotypical children, neurodivergent children may need to have this information altered for them in a way that works best.
How to Teach Financial Literacy to Kids
Young Children/Early Elementary
Most of us are better at learning something by doing it; this is especially true of young children. Rather than talking to a child of this age about money, it’s best to give them opportunities to visualize and interact with money. Children learn by playing during this stage of development, so making money fun helps to engage them.
Counting is at the root of money management. Allowing your child to count the number of apples in the fruit basket may seem small, but it’s a start to helping them understand volume and value.
Interact with money
Help children count small coins. Show them how twenty nickels are the same as a one dollar bill. Use a clear jar to store your change and allow them to come with you to the bank to exchange coins for cash. Money is an inherently vague concept; making this visible and tangible helps immensely.
Point out the cost of things
Remember that children are deducing a lot about your behavior. An easy way to think about this is to simply narrate what you are doing. For example, the next time your child accompanies you to the grocery store try, “I am choosing this box of noodles because they are 50 cents cheaper than the other box,” or “We are buying organic milk because that’s important for our health, even if it is more expensive than the other milk.”
Late Elementary & Middle School-Aged Kids
At this stage, children can learn through verbal lessons in addition to the hands-on. They are better able to grasp concepts that might have been foreign to them a few years earlier. They are more likely to start being curious about what their parents do and show this by shadowing adults or asking more questions about work. Because of this stage of development, it’s a great time to fold in money to the conversation.
Teaching children how money often leads to an either-or when it comes to exchanging it for material items. E.g. If you buy this candy bar, you can’t get the friendship bracelet.
Helping kids learn the value of saving up money for an item or waiting before purchasing something. For example, if you are in Costco and your kid points out a pair of slides he wants, you can let him know he can buy them now with his money, or put them on a wish list for his birthday. Help children differentiate between a need and a want. Some parents elect to have children save up for and purchase wants, but are more willing to pay for needs. Let’s say your middle schooler needs a phone. You are willing to buy the entry-level phone for $200, but if they want the phone with the nicer camera that is $400, they’ll have to save up the $200 difference.
Create a Bank or Credit Union Account
Yep, even at this age. Start getting them used to have their money in a brick-and-mortar shop. As they get older, you can certainly move to an online bank. But starting out with a tangible bank helps to cement what a bank is and how it functions.
Emphasize Charitable Giving
Giving to a charity either monetarily or in material goods. I’ve seen some parents have a one-in-one-out policy for material goods. This means for every toy that comes into the house, an old toy goes into the donation bin. When it comes to cash, if your child gets $20 for their birthday, perhaps you institute that 10% has to go to a charity of their choice. This helps them learn percentages, automating, and gives them autonomy of choosing a cause that’s important to them such as animal rights or rainforest preservation.
Teens get a bad rap because their poor brains are working so hard and changing so rapidly. That means teens are rewarded by things like social stimuli and risk-taking (aka doing stupid stuff because of peer pressure). That also means they have a hard time planning ahead and thinking through potential consequences. Research shows teens tend to do better when they have open parent-child communication. So this is another great time to talk to them and teach them about financial literacy.
Young kids have a difficult time understanding that advertisements aren’t reality. Teens, however, do have the capacity to see advertising for what it is; a person or company trying to make sales. That doesn’t make it much easier when it comes to keeping up with your peers’. Help them understand why you keep your working washer and dryer, even if they aren’t the fanciest. Model for them using your smartphone until it goes on the fritz, rather than rushing out for the latest update. This helps them see the value of using what they have, and that buying a new thing [usually] won’t.
Make Them Work
I’m talking work where you aren’t their boss. It’s important for them to learn to listen to others’ management styles, interact with people they might ordinarily not meet, and have outside accountability. Speaking as a person who worked in the restaurant industry from ages 16-24, I have a firm belief that everyone should work in retail or restaurant work, even if only for one summer.
Read A Paycheck
The other reason I’m a proponent of work outside of the house is that it will help them read a paycheck. If they are only getting money via Venmo, they aren’t seeing where parts of their income are diverted. They won’t see how much goes to Social Security and taxes. I can tell you that many of my college students’ whose parents didn’t have them work because “school [was] their job” are shocked when their paycheck is 25-30% less than what they’d anticipated.
Your teen should have a bank or credit union account where the majority of their paycheck is being deposited. Show them what APR means. Talk them through compound interest and help demonstrate its power; it can work for you or against you.
Finally, I’d be remiss if I didn’t address allowances. Bummer; the jury is out on allowances. Some say it’s a helpful method to pay for chores. Whereas others are in the camp that chores are things we do in this household and we don’t get paid for it. The same thing goes with grades. Some feel they know what their child is capable of and it’s their responsibility to earn good grades, and others’ feel they should be rewarded monetarily.
The moral of the story? However you decide to teach financial literacy to your kids, be sure that they are learning lessons that you know will serve them well.
Lindsay Bryan-Podvin, is the founder of Mind Money Balance (@mindmoneybalance)and the first financial therapist in Michigan. She brings financial literacy to women in an empathic, easy-to-understand way that unravels internalized barriers to feeling amazing about managing money. With a background in mental health research and psychotherapy, she thrilled to offer these unique, and much needed, services in our community. As she is aware that her services aren’t accessible to all, she also volunteers with Circles of Washtenaw County, a program with the goal of breaking the cycle of generational poverty.