From the time your kid has their first toy related meltdown in a store to your first utterance of “money doesn’t grow on trees,” you’re building the foundation of your child’s relationship with money. For young kids, it can be a hard-to-understand concept. Money might not grow on trees, but they often see it ejected from ATMs and substituted for the simple swipe of a credit card. Considering the increasingly abstract ways in which money is earned and spent, and the diminishing safety nets that younger generations won’t necessarily be able to lean on, financial experts, child psychologists and even the American Psychological Association agree that kids need to develop their financial literacy skills sooner rather than later.
But where do you start? How do you tell a kindergartener that money is a finite resource without making them worry? How do you pass on the value of the dollar and the importance of saving without raising them to be materialistic or cheap? They key is starting the conversation early, keeping it age appropriate and ongoing, and showing your kids how you use your values to shape your spending. Here’s an age-by-age guide.
Ages 3 to 4: Introduce the Concept of Money and Exchanging It for Goods
The best time to start teaching your kids about money is the age they begin to count, says Joy Liu, a trainer at a financial planning company called the Financial Gym. Start by having them count and sort coins. Teach them to identify each coin, even if they can’t remember how much each is worth just yet. She also proposes setting up a fake store where kids exchange money for goods, introducing them to the basics of shopping.
Dr. Matthew Pagirsky, neuropsychologist and certified New York State School Psychologist, suggests that starting at the preschool age, parents explain to their children what’s going on when they use an ATM, write a check, use a credit card, cut coupons, or comparison shop. At this age, the goal is to introduce the idea that you have to pay money to buy goods, and that money comes in different forms.
Ages 5 to 6: Teach the Value of Money and Cost of Goods
According to researchers at the University of Cambridge, this is the age where kids begin to understand the value of goods and set prices. Now’s the time to begin explaining how much different toys cost and how people earn money. Connect mom or dad going to work with spending money on toys or family outings. Play store again, this time attaching a price, preferably a whole number, to each item.
Age 5 or 6 is also a good time to begin giving your child a small allowance, about the same dollar amount, per week, as their age. While it may seem young to be handing money to a kid who can’t even see over the checkout counter, introducing an income is an opportunity to teach money management and good saving habits. Plus, Pagirsky says that “research suggests children who receive allowance are more sophisticated about money than those who don’t.” The second they start interacting with money, says Liu, whether from allowance, earning money through chores, or receiving money on holidays, parents should explicitly teach kids to save or donate some portion. If saving is always what’s expected of kids, it will become second nature.
While it’s a good discussion to have at every age, this is an excellent time to discuss the effects of advertising with your child. Researchers believe it is not until between the ages of 7 and 9 that kids understand that ads are meant to persuade them, and not necessarily in their best interests, and yet children are targeted incessantly. One study found that time spent watching TV was directly related to how many items kids asked for at the grocery store. Combat this by explaining to your child why advertisements exist. When confronted with them, point out what goods are being sold to them and how. As they get older, identifying the tactics used to sell goods becomes more and more important. Their ability to do so will decide whether children accept the values being pushed on them (beauty equals value, thinness is something to strive for, wealth equals happiness) point blank, or examine them more critically.
Ages 7 to 8: Teach Them About Wants Versus Needs, and Smart Shopping
At age 7, kids will begin to understand not just quantities of money but their value. They’ll be able to differentiate between the value of a dime and a quarter, and comprehend that an amount of money can only buy so much.
Capitalize on this by letting kids take a few dollars to the store to pick out an item of their choice. This will get them thinking about the value of the money (do they buy three pieces of candy, or one small toy) and help them understand that paying for an item means giving away the money permanently.
Pagirsky advises parents to set rules about shopping and discuss them before you enter a store. “Parents should not really wobble on family rules when it comes to money management. Kids need to have limits set on them and they need to understand that ultimately that parents are in control,” Pagirsky says. When you say no, use it as an opportunity to show how your values inform your spending. For parents worried about transferring their financial stress to their kids, or competing with peers, this is a particularly useful tactic. Pagirsky suggests the statement: “Our family is making a choice to use money in other ways that help our family do other things.” It doesn’t necessarily have to be about lack of money, but that you choose to put your money elsewhere.
By age 8, kids can begin to differentiate between wants and needs (phew). They also begin to comprehend the future in a larger sense than whether tomorrow is a school day or a weekend. This is a good age to set up a savings account or a designated savings area for them at home. Liu suggests attaching the savings goal to something they want, like a new toy or outing.
Financial advisor Rachel Stewart adds that to keep a child motivated, set short-term goals, like saving $5 each week, and regularly praising your child for staying on track. “Focus on the progress instead of the full goal,” she said. Then make it visual, either by keeping money in a clear container or showing your child their bank statement. Letting them watch as their money accumulates and gets closer to their goal, emphasizing when they smaller goals instead of focusing on how much further they have to go.
Ages 9 to 10: Introduce Saving, Spending, and Delayed Gratification
At this age, you can require kids to do more with their allowance. Instead of just setting some aside for savings, ask your child to divide it into spending, saving, charity, and investment. Actual investment.
“Once they start interacting with brands and publicly traded companies that they like, take them to Disneyland or McDonald’s, ask them what do you think about this company? I think that’s an introduction to investing and being able to build wealth that way instead of always staying in that work-for-money, pay-for-stuff cycle,” Liu said.
It’s also important to include kids in family budget discussions. It may turn some parents off to introduce young kids to concepts like debt and mortgages, but including kids in decisions about budgeting for a family vacation or outings shows them how money can be leveraged to get things you want. Introduce them to the weekly grocery budget or show them how you trade in Friday night takeout for a family trip to the waterpark, or put aside a few dollars each month to eventually afford a vacation. It’s about being aware of where your money is going so that you choose to put it toward the things that you care about most.
Ages 11 to 12: Teach Them About Being a Smart Consumer, Deceptive Advertising, and the Fine Art of Budgeting
The precipice of teenage-dom is a good age to enlist your child in helping to plan an event. Whether it’s their birthday party or just a family dinner, showing kids how you choose where to spend (and letting them weigh in) gives them real world responsibility. They can help you comparison-shop online or clip coupons before going to the store. Ask them to explain their reasoning behind decisions about what’s worth buying and what you’ll skip.
This may be the age where children may start to come into contact with more money and want to spend it on higher-ticket items. Stick to your rules about money management. When it comes to designer items, Pagirsky suggest setting a budget (for say, a winter coat,) and letting kids pay or save up for the difference if they want to buy an item that exceeds the budget.
This is also a good time to revisit the advertising conversation, especially in terms of social media. Talk about what tactics ads use to try to sell a product, what type or social media stars are recruited to sell products, why that is, and whether your values are reflected in these choices. Often ads try and convince consumers that if only they use their product, they’ll not only be thinner or richer or better smelling, they’ll be happier and more successful, with more friends and a more loving family. Break down these myths.
Ages 13 to 14: Give Them Their First Taste of Financial Independence
Time to go to work. This is the age when you should let kids experience the independence of making and having their own money through small jobs. Babysitting. Shoveling snow. Raking leaves. While some experts warn about tying chores to allowance, as kids should learn to contribute to their family just because, you can save additional or tedious ones for compensation.
For occasions like bar and bat mitzvahs, when kids receive large sums, Pagirsky again emphasizes the importance of explicit communicating expectations ahead of time. Well before the day of, parents should tell kids what rules they’re expected to follow, whether it’s putting a certain sum aside in savings, donating to charity, or not having access to the money until they’re 18.
With the introduction of non-allowance income, you may want to set them up with a checking account and debit card. This is a low-risk way to introduce them to plastic, knowing that they can only spend what they have. Show them how to check their account balance online before they make purchases, and have them practice making their income last.
Ages 15 to 16: Teach Them How to Build Credit and the Truth About Credit Cards
This is the age to give your child a starter credit card. Explain the concept of borrowing money, emphasizing that it always has to be paid back on time, and that you should never borrow more than you have. Explain the concept of interest, and how easily it can land you in debt, and how credit is built.
You can make you child a user on your credit card, or get them their own with a small credit limit. Liu recommends having your child use their first credit card for a subscription that gets paid automatically, and holding off on using it for more regular purchases. While Stewart cautions parents with poor credit history to hold off on introducing their child to one until they can be sure they’ll monitor it regularly, Liu says as long as kids receive all the information, there shouldn’t be problems. “There’s shame in it when they get one, and they get just part of the information of ‘Oh, you need to have one to build credit’ without understanding that you need to pay it back and that’s how interest works,” she says. Stewart adds that you can always meet with a financial advisor, even one specializing in debt management, to answer you and your child’s questions.
Ages 17 to 18: Use College as an Example of Real-World Financial Decisions
If your child plans on continuing their education, it’s best to begin devising a plan to pay for it sooner rather than later. “If you’ve always been open to talking to kids about money, talking about college can be a more rational conversation instead of an emotionally charged one,” Liu said. Comparison-shop at different schools, and try and land on an approximate amount that you’ll be able to contribute. Ultimately, the decision of where to go to school doesn’t only have to be about cost. “It’s a fine choice to say we’re gonna borrow,” Liu said. “We just have to make that choice that we’re going to do it this way, and make sure you’re doing all you can to get a job that will pay you enough to pay $200,000 back. But that conversation doesn’t get had because there’s so much emotion around going to the school that you want to go to.”
Stewart recommends bringing your child to speak with a financial advisor or other expert, since news may be better received by a teenager if delivered by a third party. Plus, it can also help to explain to the child the different channels through which college can be paid for, whether it’s savings, regular income, loans, grants, or part-time work.
You can also use online calculators to show how much and how long they’d be paying them back depending on how much school costs and what career they intend to pursue. If they choose that expensive private school, would they be willing to live at home for some time after graduation to save money (and are you willing?).
Finally, find some sample budgets online and have them play around with adult budgets. What type of career will they need in order to sustain the lifestyle they have now? How much money will they have to spend on fun if they have a job at school versus if they don’t? Conditioning to think this way will prepare them for life in the future.
Teaching Kids About Money: A Few More Things to Keep in Mind
1. No, It’s Not Too Early to Teach Them.
Some parents may worry that putting too much focus on money too early on will make their kids anxious. But Liu argues the opposite.“Keeping it in the dark can also cause more shame or guilt surrounding it. Especially if a family is having a hard time with money,” Liu said. Pagirsky agrees, noting that the keys to combating money-related guilt and anxiety is clear and consistent communication, weighing the costs and benefits of sharing certain information with your child, and being explicit about what you choose not to share.
While parents probably should be more discriminate in sharing information with an anxious child, it’s even more important that they explain why, as anxious kids tend to be good at assigning themselves blame, Pagirsky explains. “I think it’s important for parents to understand that if they choose to keep something concealed, or revealed, regardless, they’re implicitly socializing their children about money, and they can actually shape their child’s long-term privacy beliefs,” Pagirsky says.
2. Focus on the Positive.
By making it a normal point of discussion, money is just a tool that can be used to achieve goals. Liu urges parents to focus on the positive things money can do, and keep it solution-oriented. “Too often if you do talk to your kids about money it’s in a way that’s like, ‘Oh, we can’t do this because we don’t have enough money.’ So trying to instill an abundance mind-set rather than a scarcity mind-set,” Liu said.
3. Don’t Let Stale Platitudes About Money Deter You.
Shouldn’t we really be teaching kids that the best things in life are free? Well, yes and no. You want your kid to be smart with their money, but you can still weave your values into the discussion. Are you willing to pay more for a high-quality or ethically produced product? Do you regularly give away a certain portion of your income to charity? Do you use your money to support small businesses or marginalized entrepreneurs? Do you prioritize experiences, say a trip to the beach or a museum, over things like new clothes or toys. Point out when you choose to shop at the farmers market instead of the grocery store or gift a family outing over a new toy.
“Forgive yourself if you go off-track or if you’re starting late in the game. It will pay off in the end,” Stewart said.
4. Always Keep the End Goal in Mind.
The end goal is not to teach your kids that money is the most important thing, but that it can be used to reach your goals and support your values. It can buy experiences and education, support meaningful businesses and feed your family healthy food. The more you know about where your money is going, the better equipped you’ll be to put it where it matters most.