There are so many things I want to teach my daughter but money smarts is very close to the top of my list.  It is an essential life skill and I am very aware that it is my responsibility to teach her.  Many parents feel the same way, and I often get asked “What is the best way to teach my child about money?”   The truth is, like with many things, there is no one correct way.  Each child is an individual and some ways will work well with some kids, but not with others.

I believe there are two essential elements you need to help your children learn about money: you need to talk to them about it and you need to show them about it.  The following are some practical ideas of how you can combine talking and showing, to give your children a solid real-world foundation in the art of handling their own finances.  Here are some ideas are roughly split by age group but some ideas span ages groups and some children might be ready for older concepts at a younger age.  It is an entirely individual process so take the ideas that suit you, your family and your beliefs about money.

3-5 years old

  • Buy them a money-box in which you put some spare change.  Take out the money do some basic counting.  Talk about the differences between the coins, shapes, numbers.   Once they are a bit older, introduce notes and discuss the differences between notes and coins.
  • Play shops.  My daughter loves this.  We even use loose coins from my wallet to “pay” for things.  I ask her how much things cost.  Mind you everything costs either $2 or $30 according to her!  We will work on some more realistic pricing when she is older :-)
  • Explain why you, your partner or both of you, go to work.
  • Give them $2 or $5 to spend at the supermarket, so they can see how much they can purchase.  This used to be a lot more fun when lollies were 2c or 5c at the local Milk Bar!
  • Start to talk to them about the difference between the things they need and the things they want.
  • Start to talk about how much things cost, they are still very young and they won’t really understand it for a while but it helps to start the conversation.
  • Introduce the idea of pocket money when you think they are old enough to understand it.  You could set age appropriate tasks and have a chart to tick off when a task is done.
  • Help them to start thinking of saving for something they want to buy.  Get them to put aside some money in a jar or money-box to work towards their goal.
  • You are probably like me and you rarely visit a bank branch.  However, opening a bank account for each child and taking them to the bank to make deposits, is a great opportunity to explain to them how the bank works.  (Remember beware of the high tax rates on kids savings after certain thresholds.  Click here to find out more)
  • Start to talk about the ATM and where the money actually comes from, that it doesn’t just magically appear from a hole in the wall.

5-13 years old

  • Consider saving as a family for something fun like a visit to the zoo or local theme park.  Figure out together how much you need then create a plan to save for it.
  • Set up a business for a day such as a Lemonade Stand, or help them set up their own small business for family and friends such as dog walking, babysitting or lawn mowing.  This allows them to understand some of the mechanics of earning money in the real world.
  • Bring them to work for a day.  It gives them a better understanding of where the money actually comes from.
  • Have a garage sale or car boot sale, where your child sells a small number of items that they have chosen.  Help them to set the prices and then they decide what happens to the money once they have earned it.  Talk through their options in terms of spending versus saving.
  • Talk about purchasing items without cash, how items are paid for and where the actually money comes from.  Parents often use their cards so it is difficult for children to understand the relationship between physical money and putting a card in a machine.
  • Give children a set daily allowance for holiday spending and get them to figure out how much things cost, whether they can afford it and how much change they should expect.
  • Understanding the value of money – talk about making choices with your money, buying things on sale versus paying full price, spending versus saving, bringing your lunch from home versus buying take-away.
  • Get them to write a list of things that they need and things that they want.  Explain that sometimes you have to wait to get the things that you want and save for them.
  • Discuss ways to save money around the house such as turning off the lights or the heater.

13-18 years old

  • Once they are old enough encourage them to get a job part-time job or work over the summer holidays.  My husband dug graves and cleaned offices during his formative years and I worked in a library.  Having a job teaches you not only about money but more importantly about the politics of the work place, a critical life lesson and one I did not learn fast enough!
  • Give them a budget for them to cost and plan their own birthday party or major event.
  • Give them a budget to plan, cost and cook a family dinner.
  • Don’t restrict their spending.  My husband always tells me that the best money lesson he ever learnt was spending all his money on the spaceys (as they were known in those days) only to have to survive the rest of the week with no cash.  Let them make mistakes now.  It is much better now than later.
  • Sit them down and explain to them how to read a bill.  Explain to them about different payment options and that some bills are monthly, some quarterly etc.
  • Run them through the amounts of money involved in paying different household bills,  especially the hidden ones such as  insurance and electricity.  Let them know how much things cost, so they don’t get bill shock when they move out of home.
  • Tell them how much your mortgage repayments or rent is every month.
  • Explain how a credit card actually works.
  • Talk about mobile phone plans and how they actually work.

Last but not least, I believe absolutely the BEST way to teach your children about money is to be a good money role model yourself.  As they say actions speak louder than words, and we all know our children are sponges for everything that we say and do.  Let’s face it who hasn’t been shocked by something our child has said or done and thought to ourselves “where on earth did they learn that?”  Model the money behavior that you want your children to learn and you will be successful in creating a confident, financially savvy member of the next generation.

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Disclaimer: The information contained in this post is general in nature and does not constitute financial advice.  Please see your financial adviser for advice specific to your individual circumstances.