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How To Teach Your Children About Money

written by Shelley Marsh 10/10/2013
How to teach your kids about money

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.

If you liked this post you might also like:

Why Money Is Just As Important As Sex (When Talking To Your Children)

5 Financial Tips You Need To Know Now You’re a Parent

How to Pay Off Your Mortgage Faster

Winter Family Meals On A Budget

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.

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32 comments

Bec @ The Plumbette 10/10/2013 at 4:36 pm

Shelley, this is a great article! I have been teaching my three year old Esther about saving money and she has a pig money box that she puts her loose change in that she finds/gets given. I also opened up accounts for both my girls so that any money that the grandparents give to them is put straight into their savings account. My daughter is saving for a trip to Disneyland. We have a looong way to go but so glad that she gets it at such a young age.

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Shelley Marsh 10/10/2013 at 10:38 pm

Hi Bec! I love that your daughter has a goal and a trip to Disneyland is a great one! I think it is wonderful that she is already well on the way to learning all about money. Well done!

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Jodie@FreshHomeCook 10/10/2013 at 8:48 pm

Fantastic advice Shelley! We are trying to teach our 3 year old about money & saving. He loves putting loose change in his money box & then taking it to the counting machine at the bank.

If he’s anything like me he will struggle to not spend impulsively, but hopefully he’ll be a little more frugal like his dad!! 😉

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Shelley Marsh 10/10/2013 at 10:40 pm

Hi Jodie, LOL! I hear you on the spending side of things, we are the same! I am the spender (mostly reformed :-)), my hubby is the saver! I am hoping my daughter will take after her father too!

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Renee at Mummy, Wife, Me 10/10/2013 at 10:34 pm

Great tips, thanks Shelley. My daughter is just turned three and she does have quite the fascination with money. We often play shopkeepers and she is interested in all the different sizes of the coins. I’ll definitely try a few of the things you suggested above. Thanks.

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Shelley Marsh 10/10/2013 at 10:43 pm

Hi Renee, I am glad you liked the post. My daughter is quite obsessed with money too! My hubby laughs and says “Well we all know who’s side of the family that comes from!”. In truth, I am quite proud 🙂

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Zanni Louise 10/10/2013 at 10:42 pm

Great tips Shelley. We don’t do much around money with my three-year-old yet, except to try and explain the value of things, e.g. things we don’t need, or when she throws food. Hope you are enjoying the course! x

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Shelley Marsh 11/10/2013 at 9:13 pm

Hi Zanni, yes mine went through a food throwing stage too! Yes I am enjoying the course, how about you?

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Katie (@mumabytes) 11/10/2013 at 9:22 am

Thanks, Shelley! So useful to have age appropriate tips. I have a money box for my 3 year old and I also have a cash register for her and try to encourage her to understand the value of money and what “purchasing” means. at the moment she doesn’t ask for money, but I know the day is coming – and I’m dreading it!!!

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Shelley Marsh 11/10/2013 at 9:12 pm

Hi Katie, yes my daughter loves her cash register too, though instead of the plastic money she prefers the change from my wallet!

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Mums Take Five 11/10/2013 at 9:52 am

Great ideas Shelly. Thanks for all the information. Love you have it in ages brackets thats so helpful.

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Shelley Marsh 11/10/2013 at 9:11 pm

Glad you liked the post Bel!

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Leanne Winter 11/10/2013 at 12:19 pm

Great tips, Shelley. My two do ‘school banking’ each week and love watching the balance grow. We put in a couple of dollars and they will usually opt to put some of their own pocket money in too. I personally don’t link chores to pocket money. They are each expected to do some tasks around the house because they live in the house and everyone has to help out.They get pocket money as they are valued members of the household and are entitled to some spending money. In addition to what I expect from them we have a list of tasks on the fridge with a monetary amount next to each one. If they do any of these extra tasks WITHOUT being asked to they can earn themselves some extra money. I find this works quite well as it avoids me having to nag them.

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Shelley Marsh 11/10/2013 at 9:10 pm

Hi Leanne, yes I agree with your idea that pocket money does not have to be linked to tasks but they get it because they are members of the household and are everyone has to help. I particularly like your idea of additional tasks for additional money but only if they are done with out asking. I will be adding that one to my list! Thanks so much for stopping by!

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Becc 11/10/2013 at 3:47 pm

I have money boxes and a bank account at this stage for Mr4 – well 2 out of that list is a good start right?
I will be printing off this list to refer to as he gets older. I agree that it really is important for them.

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Shelley Marsh 11/10/2013 at 9:07 pm

A great start Becc! Many parents don’t bother at all to tell their children about money so I think you are doing a great job!

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Martine@themodernparent 12/10/2013 at 7:32 am

I think my kids still sometimes think the ATM just throws out money to us! I agree good role modelling is one if the best ways. Sometimes saying no to things too let’s them know the difference between wanting things and needing them. Even if you can afford it it is good to draw the line to help reinforce this point. Great tips

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Shelley Marsh 14/10/2013 at 7:02 pm

Hi Martine, Yes I totally agree! Quite often I say no to my daughter even if the thing she wants is a dollar and won’t really break the budget. I have decided that the world will tell her no, so I would prefer she got used to it by hearing it from me! 🙂

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Elise @mummy hearts money 12/10/2013 at 8:05 pm

Can I just give you a little kiss? I wandered by to have a read of your latest posts, and just noticed I am on your blogs I love list. I think that’s a first for me, and it made my day xx
This is a post near and dear to my heart. I think kids need to be taught electronic finances these days in particular, long gone are the days of having the money in your wallet to keep track of

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Shelley Marsh 14/10/2013 at 7:00 pm

Hi Elise! LOL! So glad I made your day! I absolutely agree that once kids understand the concept of money, the electronic side of things must be addressed. Electronic banking and credit cards are wonderful tools and great if used wisely. Not so great if you are young and no one has explained to you how to use them properly.

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Grace 12/10/2013 at 8:18 pm

My boys love playing shops and they seem to be very business savvy! 🙂
We also have moneyboxes for them (my MIL bought them for their 1st birthdays) and while I didn’t really think much of them at first, they’ve been great tools to start teaching them about the value of money.

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Shelley Marsh 14/10/2013 at 7:04 pm

Hi Grace, yes I think the money-box is very underrated by parents in terms of what it can teach kids about money. They are a small investment but certainly a tool that can teach kids a lot about saving and spending.

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Alison @ The Thrifty Issue 13/10/2013 at 8:28 pm

Great tips! We have money boxes, but the money seems to go missing all the time!!??? The kids play shops, but I don’t usually get involved. I like the idea of teaching them about money by playing shops – so I will in future, thanks for the tip – and all the other great tips 🙂 Cheers, Alison

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Shelley Marsh 14/10/2013 at 7:05 pm

Hi Alison, yes I quite like playing shops with her mainly to hear her imagination in action and also as a tool to teach her about money. Thanks for stopping by 🙂

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Hope 02/03/2014 at 10:43 am

Great tips, you’ve really thought of it all! Miss6 loves her new purse we bought her. She’s learning all about money and the value of things, not that she would ever have a problem with throwing money away willy nilly. She’s a chronic money scrounge, it goes into her money box and never sees the light of day again!

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Declutterbug 02/03/2014 at 8:30 pm

My eldest (9) has a firm grasp on money and regularly fleeces his younger siblings at “room sales” where he puts his junk on his desk and sells it to them for their money box money. I had to step in when I caught him researching and charging RRP for things. I believe he will go far. My older daughter makes me chuckle when she manages to save for a treasured toy, and then spasms me if we can “go and waste her money on it”. The twinnies, just play with their coins so far. Probably a good job, as they would realise how they have been overcharged for things by their big brother.

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Declutterbug 02/03/2014 at 8:31 pm

Spasms? Autocorrect…. “Asks”

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Mums Take Five 02/03/2014 at 10:42 pm

I need to put some of these to action asap.
thank you for all these great tips xx
Thank you for linking in for Sunday Brunch @ Mums again xxxxx

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Kell Kelly 03/03/2014 at 10:51 am

I love this article. I have doing pretty much what you mention and it is amazing how different my kids are. My eldest is 7 and he has no interest in saving regardless what we say and try. If he has money he wants to spend it. Where my 5 year is the opposite he is saving for a house already. hahaha. We make sure he knows he can spend a little bit if he wants to but majority of the time he is happy to keep saving. Great tips for every household though.

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Jason Wong 07/08/2014 at 11:44 pm

Great article Shelley – I loved how you separated the age bracket and applied different lessons that made sense within that bracket. I often reflect back on how I learned to save money, which basically involved piggy banks and handling of physical cash. I recently, however, came across an interesting insight – ways of handling money are very different now compared to when I was a child. We use alot of technology nowadays to handle money, so we should be mindful of adjusting our money lessons to cater for the new way of handling money as well. I thought alternative way of thinking about money lessons for the young might interest you considering you are a mom yourself! I covered the topic in detail over on my blog – hope on over if you are still interested 🙂

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