3 Tips to Teach Little Kids About Money
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If you follow me, you’ve seen my “20 for 20” list. One of my goals for 2020 is to teach my kids how money works. They’re both 4, and they are growing up in such a different environment than Jeremy and I did. They rarely see any cash being exchanged, so they don’t really understand how money works. They know generically that mom and dad work everyday so we can “make” money (but no, we don’t actually “make” the money, we’re not a paper mill), and that we use that money to buy things we need and want, but I think the concept is difficult to grasp at this age, especially when I don’t know if they’ve ever seen us hand over cash for anything!
A study done at the University of Cambridge showed that money habits are formed in children by the time they’re SEVEN YEARS OLD. Geez. I decided we were going to get started on good habits when it comes to money even though the twins are only 4. Here are some simple tricks we are using in our house to teach our little kids how money works and how to manage money in a responsible fashion.
1. Be a good example
Don’t worry – this is by far going to be the toughest tip I’m including in this list. But you simply can’t expect your children to grow up with good money habits if they are constantly witnessing bad ones. This is something that I think a lot of parents take for granted. Our kids see and hear everything, and they understand WAY more than we give them credit for. Talking frankly with them about money is important, but leading by example is critical.
I often tell people who are just getting out of school or getting their first jobs that, as soon as they start getting a paycheck, they need to immediately split that money into different accounts:
- Everyday checking. This account is for paying day-to-day bills. This account should always have enough to cover your monthly expenses.
- Short-term (emergency) fund. This account is for when your car breaks down or you get sick and have to come out of pocket for your deductible (if you have a big deductible, you really should be looking into an HSA, but that’s a post for another time).
- Long-term savings. This account is money you generally don’t touch. Everyone should be striving to save 6-12 months of living expenses in this account just in case.
- Retirement. Any extra money should be going towards retirement in the form of IRAs, 401(k) plans, or any other tax-advantaged plans first, then into traditional investment accounts.
Once you’re in a good position on the above 4 categories, then you can start thinking about contributing to other categories like charity (I know a lot of people automatically contribute a portion of their earnings towards charity before saving for themselves, but I personally think you need to have an emergency fund before you do this) and college savings (seriously guys, don’t ever tie up money in college savings for your kids if you don’t have enough in retirement funds – there are student loans. There are no retirement loans).
The first thing I did was pull out the twins’ birthday money and gift cards that I had been hoarding for them so they could see the actual cash and the fact that cards can be used to pay for things too. Then I pulled out my laptop to show them how grown-ups keep their money.
I explained that one screen was all mom’s “saving” money, and one screen was mom’s “spend” money. All the minus signs are things that I paid for, so every time there’s a minus, that means there is less money in my account. Then I pointed out certain minus signs that were amounts going to charity, which means that was “share” money.
Sophie asked why one account had her name on it, so I explained that grandma puts money in special accounts for them to use when they want to go to college, and that college can cost a lot of money. She said, “I would LOVE to go to college! Why do I have more money than Noah?” Instead of explaining the concept of dollar-cost averaging, I just said, “Don’t worry, Noah will have more than you next week.”
Ok, enough about grown-up savings – I can talk about this for hours, so let’s get back to the point, which is teaching LITTLE KIDS about money. But I wanted to make sure we all realize that little eyes are always watching, so the best way to teach your children about money is to be a good example yourself. Part of this is explaining honestly how mom and dad manage their own money.
2. Explain how much things cost
You’re probably already doing this to some extent. You know when you’re at the store, and they say, “Oh mom! I love this so much! Can I have this?” You’re likely used to saying, “That’s too expensive,” or “Not this time; we’re already spending too much.” Well, these are your chances to explain in a little more detail. Show your child the price tag and say, “See, this doll costs $25; that’s a lot of money for a toy.” Go even further and start getting into opportunity cost – they may not quite get it, but I think you’d be surprised: “We are already buying you new rain boots, and we can’t spend more than $30 on this trip. If we buy the doll, we won’t be able to buy the boots even though you really need them for school. Do you think that would be a good idea or a bad idea?”
To get out of the well-known jam of your kids wanting something they can’t have at the store, check out this easy trick I use without fail.
3. Get a Moonjar moneybox
My specific goal for 2020 was to start a “Spend/Save/Share” jar for each of the kids, and I had been on the lookout for something like a piggy bank but with categories. I found these Moonjars on Amazon, and I bought one for each of the twins.
What I like about these specific piggy banks is:
- It’s already split into 3 separate categories.
- It’s see-through. Ceramic piggy banks are cute, but kids can’t see what’s inside and have no idea what it looks like when they’re money grows or shrinks.
- It includes a little passbook where kids can keep track of their totals and figure out how much should go in each.
After we decided how much to put into each category, I told the twins to think hard about something they really wanted to save their money for, and we would figure out how much it would cost. Noah decided he wanted a Statue of Liberty LEGO set, and Sophie took a little longer to decide. Later that evening, she announced that she wanted a pair of roller skates.
I explained how much each item costs, and that they need to save that much before we can buy them. Then we drew pictures of their “save” items and put them on their save jars.
In the interest of full disclosure, I drew the pictures, and the twins colored them. I am… clearly not the artist in the family. Hey, I got the point across.
I am planning on starting to give the twins a small allowance so they can manage their money. I know some people pay for chores, but we will probably just be giving them around $4 a week simply for the lessons on money management. My kids are pretty great for 4-year-olds at their responsibilities around the house, and they know that pitching in around the house is what everyone does – without pay!
And now we wait. . .
Ok, so I’ll let you guys know in about 30 years how this worked LOL. I kid, but I do expect that this will be an ongoing experiment for the next several years. I am excited that we are starting the process now, though.
How did you learn about money management, and what will you be doing to teach your kids how to handle their money?
54 Comments
Alexis H.
This is a great way to help the littles understand money! We have a piggie bank for each of our littles and we help them know what each coin’s worth is and count it up, I do like that you added what they are saving up for and had them color it so it sets a goal of what to save up for! You are absolutely correct that we are the prime example for them.
Serena
Yeah, it was funny when we were looking at the bills – I had to remind them to look at the number and notice that a $20 looks the same as a $5, but it’s worth a lot more. I really need to do this with coins too because they REALLY never see any coins!
Cheryl Oreglia
These are awesome suggestions! Thank you for sharing such great ideas! Can’t wait to get my grandkids started.
Britt
I love the idea of using those banks and helping them to establish good skill in terms of handling and saving money by setting goals and working towards them now. Life skills like that are often overlooked until far too late when we grow up and learn from our many mistakes lol
Serena
I agree! I always used to gift a money management book to people who were getting their first job, and I need to remember to keep doing that. I have lots of young people in my life who really have no idea what they’re doing! I hope my little ones will form good habits early this way (fingers crossed)!
accidental blogger
This is very important life lesson to be taught to the children. It’s so good to see that you’ve been educating your child from early stage ☺️
Serena
Thank you! I do my best when I can ?
Adriane
By age SEVEN? That’s crazy! My boys have such a tough time with this concept for sure especially saving. We have made it their responsibility to use their own money to buy any toy or necessity they want. And we JUST got them moon jars. My seven year old is pretty sad about the save one but then decided tonight he’s going to save up $1,200 for a plane ticket to San Diego and a ticket to Legoland and some money for an Uber. Oh goodness! But now he’s excited to save, at least! LOL!!!
Serena
Whoa, $1200 hahaha! Now that’s a pretty grown-up goal! I love it!
Kimberlie
I love that you provide a simple, but accurate and non threatening way to start to build children’s knowledge on finance. My husband and I had been talking about this, but were not sure how to approach it. I’m gonna share this with him. I also want to look into getting some books on money too.
Serena
We got the Berenstein Bears “Trouble With Money” book, and they seem to enjoy that one!
Chelsae
Money can be such a hard concept, but yet to important. I love the moonbox for a visual!
Serena
I agree; I keep the moonjars out in plain view so they always have it in mind.
dory
this idea is great and helpful in teaching our kids to value money
Serena
I’m glad you enjoyed them – thank you for reading!
Nilakshi at merakimusings
I am learning a lot from your tips. Moon jar is a great idea. I am not so good with money and budget but now I am improving. Thank you
Serena
Everyone can make improvements – no one is perfect! I am planning on doing more posts in the future with financial tips, etc., once I’m out of my holiday haze haha!
Amy michaud
Love the moon jar idea, everyone always laughs at me when I take my kids to the dollar store with 5 dollars and tell them they can only get 4 things, and then I explain there’s tax too. Loved the post
Serena
I haven’t quite gotten to tax yet, haha! I told them they need a little more than the list price, but they didn’t really seem to notice. Their heads are filled with LEGOs and roller skates LOL
Beth
7 years old?! Well, that’s no pressure at all. ? my son is only 2 now so I haven’t even thought about how it might be more difficult to teach him about money since we just swipe a card everywhere. These are great tips!
Serena
That’s exactly what I realized! My kids rarely see cash! And yes, 7 is crazy early – we need to start when they’re little to build those good lifelong habits!
Mary
I think this is a great way to teach your children about money!
Serena
Thank you, and thanks so much for reading!
Linda
I bought Moonjars for my grandchildren. Great way to teach them. Good post.
Serena
You’re right – This is a great gift for grandchildren too; I should have mentioned that in the post! Thanks for reading!
Renee
You really open my eyes with this post! I never thought about teaching my kids about money but it’s so important
Serena
Oh, that makes me so happy that you are now thinking about it! Thank you for checking it out!
Tamara
Lol You’re right definitely is a long term goal that could take years but so worth it. It’s great that you are starting so young. I’ve never heard of moon jars before so that was new to me.
Samantha
Thanks for sharing these tips. I definitely think I am going to look into the Moonjars. I never really thought about it but it does make a lot more sense than a piggy bank. I’m sure seeing the money grow or shrink is definitely going to work better than not.
Serena
I think it’s better than a piggy bank, right? I just really like how they’re clear AND that they’re separated, so the idea of budgeting can start early. Thanks for commenting, Samantha!
Jenny
I really like your attitude towards money and saving. I wish we were more proactive with our own kids about saving. In our household, Hubby and I come from very different financial backgrounds and 2 different countries where kids and youth have extremely different financial responsibilities.Which makes it tricky agreeing how to raise our own kids. I am going to try out some of your ideas bit by bit anyway 😉
Serena
Thank you! It is very difficult when you have two different attitudes. My husband is not quite as aggressive as I am when it comes to saving, or as cautious when it comes to investing and spending. Luckily he mostly lets me tell him what to do, ha!
Rachel
Well good advice, I don’t have kids yet. I’ll definitely use this Tips when I have kids.
Serena
Thanks! There are a few tips for grown-ups in there too ?
Cynthia
This is fantastic! This is something that I have been meaning to implement in our family and just haven’t gotten around to. I love the bank you mentioned. I’m definitely going to buy that. Thanks for sharing!
Serena
Oh, the kids love the moonjars – they think they’re so fun!
Brittany Fiero
Love these tips and I have this pinned. My son is only two, but my husband and I have already started talking about how we were raised to understand money and spending. Your ideas totally align with some of our parenting goals. Thanks for the inspiration!
Serena
I’m so glad you found it useful; thanks for reading and pinning! ?
Kelly| Citytoast2southerntea
oh wow I love that idea of the moon Jar I need to get this for my 12 year old.
Serena
This would totally work for older kids as well!
Jim
Very nice tips! Thanks for sharing!
Maria
This is very good advice for teaching kids about money. It really is a different environment and not seeing actual cash does pose a problem. Children are concrete thinkers and money being an abstract concept with the use of credit cards definitely makes it more confusing for them. I like the ides of moonjars. They do look cute.
Serena
You’re absolutely right that they’re concrete thinkers – I have a whole separate post about helping them understand the concept of time with sand timers – how does a 3 year old know what “5 minutes” is supposed to be?? Thanks so much for your comment!
Charity
These are such great tips! Thanks so much for sharing!
Tina
This is so great. Good planning! My kids are adults now but we started teaching them young too and I am proud to say both graduated college with no debt and both are good with money (my 30 year old just bought his first house!) You are doing your kids a wonderful service!!
Serena
That makes me so happy and gives me some hope – you have done a great job!! Sounds like your children are very impressive for this generation especially haha!!
Maryanne Kindle
Loving the Moonjar idea! I usually put the money my kids get as gifts into a savings account, but I think it would be a great lesson to keep a little out and let them save up for something they want!
Serena
We put the “big” money into savings and college funds, but the $15 here and there for birthdays and their new weekly allowance will go in the jars. They really need to learn that it’s not as easy as, “Mom, I want this!”
Raquel
It is so important to start teaching them money wisdom at a young age so they can develop good habits by the time that they start actually needing them!
Serena
That is the hope! Like I said, we’ll find out in about 30 years, haha!
Erin
These are great suggestions for how to teach young children about money. I like the idea of using opportunity cost to try to explain the value of things.
Serena
They are so little for this concept, but they know how to add and subtract well enough to understand that if we have $15, and we’re buying a $10 doll, we have $5 left, which means we can still buy the $5 Elsa shoes or the $5 Barbie outfit. My little boy actually looked at a $10 item this weekend and said, “I want to leave this and get TWO of the monster trucks,” which were $5 each – even I was impressed, ha!
Flossie
I love those banks! Both of our girls have had some hard lessons in money management when they overspent their year’s lunch account by around the mid-year point. (As we discuss with them at the start of the year, we put in enough $ for ONE school lunch per month and ONE “treat” per month, but when the money is gone, it’s gone – funny how quickly daily decisions to buy an ice cream bar add up!) It’s a hard lesson to learn, but it has really sunk in for each of them. Being Girl Scouts and participating in the yearly cookie sales program is a great way to learn more about money, too!
Serena
Oh yes, we are already learning lessons. They broke a 2-minute timer that they use for tooth brushing (by throwing it across the room – NOT an accident), and I said, well we can use your money to buy a new one, or you can count to 120 when you brush. They started counting real fast.