Back to School: Teaching Your Kids Financial Literacy


One of the most important things a person can learn is how to manage money wisely. There is a serious lack of money management skills among adults in this country: one-third of Americans have no retirement savings and the Federal Reserve pegged credit card debt at 880 billion dollars nationally. Could things be different if financial literacy were taught at an early age?

As with most skills, the earlier a person can learn and use them, the more likely it will be that these skills will become habits in adult life. Unfortunately, not many elementary schools or high schools teach children about money, depriving many people of the benefit of an early financial education. What can parents do to fill in the gap?

Set a Good Example

Warren Buffet said he learned how to save money by observing the habits of his father. Children closely scrutinize their parents and are often very aware of what’s going on in their parent’s lives. If you are interested in providing a sound fundamental understanding of finances, it may be time to beef up your own skills and knowledge of finance and make your own wise decisions with money.

Play Games

There are a number of financial games that children can play which have been shown to teach basic financial concepts. Children learn best when they believe they are pleasing themselves. Tell a child they are going to learn something and they may instantly tune out, while children may go out of their way to play a game, and often games allow children to focus well enough to learn better.

For a list of financial games designed for children, you can visit

Learn How to Make and Count Change

Being careful with small amounts of money can ensure that care is taken with larger amounts later in life. Most cashiers depend on their registers to calculate how much change to give a shopper when cash is given for a purchase. Many adults are guilty of not counting this change, nor mentally computing how much change should haven be given back. Being sure of the right change can be a teaching experience for your child, and also ensures that he or she knows how money is structured.

By being able to count change, your child will know that 100 pennies make a dollar, 4 quarters make up a dollar, 5 nickels make up a quarter, five one dollar bills is the same as one five dollar bill and so on. Your child will also start becoming more skilled and familiar with financial calculations.

Give an Allowance

Some experts say that having an allowance is a bad idea, especially if you tie it to chores performed around the house. However, giving children actual cash in hand can improve their understanding of and ability to handle money. Practice, practice, and practice – you can’t learn without experience.

It’s up to you to determine the amount of money you give your kids. Some parents like to give their kids the same amount of money they received as a child (adjusted for inflation).

Teach Your Child to Wait to Buy Something Until Enough Money is Saved

Americans are often guilty of instant gratification, and the staggering amount of indebtedness of the country is testament to this fact. The concept of saving money is invaluable and should be taught at a young age. If your child wants a special toy, don’t just buy it for them, have them save up their money and allow them the experience of actually purchasing it in the store.

Start with small savings goals; telling your child they must wait a year before they can purchase a toy will probably not go over well and they will lose interest in the process of saving. Practice with inexpensive toys or games so they can buy the item within a few weeks. You could also consider giving them matching grants towards a more expensive toy if they can show discipline putting aside money.

Teach Accountability

It’s important for kids to know that everything costs money and that they are responsible for the money that they have. If your child loses a dollar, you may be squandering a life lesson in replacing it: he must know that a dollar is gone for good if not handled responsibly. The concept of a lost dollar also comes into play when making purchases: explain to them how buying something they didn’t need or was too expensive can take away available cash from their next purchase.

Teach the Difference between Needs and Wants

Any purchase you make can be a learning experience. You can explain the rational behind your financial decisions. Groceries are obviously a need; getting a new video game is obviously a want. You should teach that it’s ok to indulge wants, but needs should be the focus when making decisions on spending money. Look around your family home and discuss your family’s choices and the things you could live without. The separation of spending choices into wants and needs is one of the basic skills in budget creation.

Talk About Money

Explain the concepts of investing, interest and the costs of borrowing to your child early and often. Many grown ups lack this basic knowledge and providing this information to your child could allow them to get ahead once they become adults.

Start your child off with a piggy bank at a young age, and as soon as they’re ready, take them to the bank and open a saving account. Review with them each month how much they have in savings and how much they’ve earned in interest (you can pay them interest on money in the piggy bank as a start).

Once your child is old enough (and it’s probably sooner than you think), talk to him or her about actual family finances – how much you make, what your expenses are, and what kind of investment strategy you are following.

Allow Children to Make Purchasing Choices

Handling a small allowance will only go so far when it comes to experience with money. There can be many opportunities in honing financial skills. Every family buys food on a weekly or even daily basis and these purchases can be a great teaching tool. When you go to the grocery store, within the parameters of your shopping list, allow your child to decide what food to buy. Give your child a set amount of money to buy a certain food and allow him or her to make the choice between brands. Explain why you can purchase more of a cheaper item than an expensive one.

If you can talk, about the rational for other family shopping choices as well:

  1. Could we have gone to the thrift store and get two of what we needed instead of one?
  2. Did we have to buy this item or could we have borrowed it?
  3. Did we comparison shop the price on this item before purchasing it?
  4. Was this item purchased online because it was the best price?

College May Be the First Big Investment

For kids in high school, the discussion of exactly how much college will cost and the various methods of financing their education is a great lesson in money management. Explaining the terms of student loans, with emphasis on what payments are likely to be along with how long it will take to pay back obligations can be eye-opening for both kids and parents.

Student Loan debt is reaching epidemic proportions. The average 4-year college graduate left school in 2014 with $29,400 in debt, and in 2013, 13.7 percent of student loans were in default. Spare your child this fate.

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