Step by Step Financial Literacy Guide For Kids
In modern school, there are many subjects that help your child gain knowledge of how the world works. But very important skills that your child will definitely need in everyday life — communication, teamwork, and financial literacy — are left out of the curriculum. The absence of training in these subjects brings legitimate consequences. For example, according to a study by the American Psychological Association, 72% of adults report feeling stressed about money in the past month.
As a parent, you know children are like sponges that soak up information and behavioral patterns. Therefore, there is a high probability that your kids will internalize your money habits and will probably make the same mistakes. This happens naturally because children borrow not only financial behavior patterns but also the level of self-control skill development.
If you want your child to develop a rational attitude to money, it is worth starting at an early age. A variety of exercises and open discussions in the family will help with this goal. Your child will trust your games and your instruction because parents are always the primary role models and the main teachers.
While educating, you will encounter the peculiarities of developmental psychology. It will quickly become clear that learning and motivation patterns will change at different ages. We talked to a psychologist and prepared a detailed guide for you on how to teach your child.
Ages 3-6
To develop an understanding of money, spending, and earning, a preschooler needs a vivid example or image, and cartoons can help with that. So find special educational cartoons on finance. But you should not watch many episodes in a row. It is better to pause and discuss what you have seen with your child. It will be more valuable for the educational process and not just entertainment.
At this age, it is better to give tasks that the child will definitely cope with and afterward gradually complicate him. Preschoolers will be happy to mimic adult behavior, so «play store» with your child. Open up an imaginary shop with a cash register, items, and price tags. Tell that here, as in real life, you can only buy goods that you have enough money for. Give your child some imaginary cash and ask him or her to buy something for dinner. This game will give an idea of price as well as the limitations of money. Now «Money doesn’t grow on trees» will make sense to your child.
You can begin to give small amounts of pocket money to your kid. This is how a child will get their first experience with money management. Even if the first time your kid spends it all on candy bars at the store, don’t interfere with it. Just try to discuss friendly and openly decisions and consequences afterward.
When a child gets his or her own money, you need to talk about savings. Explain that there are things that are worth waiting for: new gadgets, trips to the sea, gifts for friends. To teach your child to save money, you need a learning experiment. Let your kid pick something to save for, and then start a piggy bank. Draw and visualize how much progress has been made toward his wish. Check that the goal is achievable in a couple of weeks — that will help the kid stay motivated.
Since this is the first experience of saving, you can encourage with additional pocket money. Notice and praise for small steps toward a goal. If your child can’t save money at first, don’t get frustrated. Take a rest and repeat the process with a more reachable goal. Make sure to support your kid emotionally because delaying gratification is the most challenging for this age.
Right: Have Fun!
Wrong: Giving difficult tasks.
Right: First-hand experience.
Wrong: Theories and lectures.
Right: A 20-minute lesson or less.
Wrong: The lesson lasts 30-40 minutes.
Ages 7-11
At this age, achievement motivation appears — children want to receive praise and recognition. A child already understands cause-and-effect connections, so it becomes easier to make decisions and see their consequences. But be especially delicate in your judging.
A rigorous assessment of a young student’s activities and achievements can significantly reduce the child’s self-esteem and desire to learn. Psychologists point out a frequent mistake in teaching kids of this age group — excessive or insufficient control by an adult over the educational tasks. Teach your child to notice successes as well as to show autonomy in learning.
At this age, cognitive skills become stronger: the child learns to reason logically. That’s why a junior high school student can already be invited to discuss budgeting and planning with the family. When children see how their parents handle financial decisions, it makes them feel confident about their own abilities. It also shows that money is not a taboo subject and can be discussed openly. When your child is comfortable with family discussions, let him or her participate in making big purchase decisions. You can also explain why the purchase is necessary and what you have done to afford it.
Another way to practice your kid’s financial skills is to ask him or her to plan your dinner on a limited budget. Go to the store with your child and let him manage the money. During dinner, discuss the results of this activity with the whole family in a friendly and supportive manner. Show respect and empathy for your child’s decisions, even if you don’t like them.
It is worth remembering that egocentrism is still powerful at this age, and it is challenging for a schoolchild to think about the needs of their family. But you can consider discussing the different options for shopping and their benefits. This will also show that there are more and less advantageous options. Children at this age like to classify, so use this in your teaching. For example, when you go to the shop, try playfully categorizing products into different groups: necessary and unnecessary, profitable and unprofitable.
Another great opportunity to teach about value, discounts, and decisions is a yard sale. Give your child a small task — to get rid of unnecessary things and toys and determine the price for them. This year, put your child in charge. Let them help you arrange goods as in a store, so your neighbors can notice and buy them. At the same time, discuss why this or that sells faster and how the uniqueness and condition of the item affect the price.
Let your child know that many people haggle, and it’s no big deal. Make sure the kid is comfortable when you are bargaining with the customer about the price. Encourage him to haggle just for fun. The excitement he gets in the process will give him a better understanding of supply and demand and the negotiation process.
Right: Respect and empathy for the child’s decisions
Wrong: Strict critical evaluation by significant adults
Right: Categorizing with real examples
Wrong: Abstract Reasoning
Right: The family discusses together spending decisions
Wrong: Money is an adult-only topic
Ages 11-14
In early adolescence, the child develops a desire for independence as well as the ability to understand mathematical concepts. But this is one of the most challenging periods in a person’s development, and you need to take it with proper understanding. It is perfectly normal that your child’s learning motivation takes second place, and relationships become more and more important.
As the child becomes more independent and his money-handling habits become more obvious, it is time to talk about long-term and short-term planning. First, invite your child to evaluate his or her own spending and saving and whether he or she needs support or advice with financial management. If the conversation goes well, ask about the goals your kid wants to achieve. Discuss ways you can change habits to move towards your aims and desires.
If your child already has a definite goal, go to the bank together and open a savings account for your child. This grown-up move will make them feel more responsible for their spending habits and motivate them to save. Invite your child to keep their own spending and income journal. This is a great tool to have a clear vision of their financial behavior. If there is no clear goal for saving now, you can return to the discussion later.
During this same age period, it is appropriate to talk about financial products and credit cards. If you have a debit and credit card, explain the difference to your child. It is better to do this with real examples when shopping. Clarify that money doesn’t just appear from nowhere: it’s either savings or debt. You can also mention interest in this conversation, but you will need to explain it. For example, say that you borrow money from the bank at interest when you pay for purchases with a credit card. The key idea that must be communicated to the child is that credit has a term and a percentage fee. Ask your child when credit is necessary and when it is useful, and when it is spent on things you can’t afford.
Right: Reflect with your child on his financial behavior
Wrong: Discuss only abstract concepts
Right: Provide with real accounts and cards
Wrong: Keep giving money in cash only
Right: Embrace a possible decline in learning motivation
Wrong: To force a child to learn as much as before
Ages 15-18
At this age, your teenager considers himself part of the adult world and is eager to understand it more. It’s a great time for conscious experimentation and serious independent decisions. Despite long financial literacy training, your child will still be making missteps. The parent’s job is not to guard against mistakes but to teach how to learn from them.
At this age, you can introduce the tricks of the advertising industry. For this purpose, wait for your kid to share a mistake he or she has made in spending. This is a great time to show empathy and talk about your own mistakes at their age.
Talk about how you handle yourself when the irresistible urge to buy something here and now arises. Suggest ways to distract yourself from impulse buying. Watch together some videos about how commercials work and why people make instant purchases. After this conversation, leave your wallets at home and go out to the big mall as if you were in a museum on a field trip. Together with your child, figure out how this or that advertisement is trying to manipulate. Finish your tour by discussing strategies for resisting for the more important goals.
Teenagers are starting to spend more time with their friends and more money. Habitual pocket money may not cover all of your child’s current needs. It’s a good time for a teenager to get a job and earn extra income. If your child is already actively looking for ways to make money, consider it a sign of healthy ambition and a result of your training. Invite him or her to babysit or mow your neighbor’s lawns. Try to find someone reliable who needs work and who is willing to pay your son or daughter to do it. This is an important way for a teenager to feel independence and the freedom to decide how to spend their time. It is also an essential empirical experience that other people can pay for his work, and thus his time, attention, and effort are worth money.
It’s a good time to discuss different jobs and their own hourly rate. You can compare high-skill and low-skill occupations. For example, you can count any desired by your child purchase in hours of work. Let’s say your child wants a new skateboard or a phone that costs $100. Tell how many hours he or she will have to mow the lawn or babysit. Also, tell your teenager how long it would take a skilled programmer, designer, teacher, or restaurant worker to complete such a goal.
It is important to remember that not every youngster learns how to plan their own budget even by their older teen years. Parents can help teenage spenders by being accurate and self-structured themselves. Top up your child’s card weekly, not monthly. This will teach your child to plan their expenses for a shorter period of time.
If a teen is spending pocket money for a week in one day, parents should avoid recharging the card until the next week.
Discuss what options the family has to cover financial obligations for college. You can talk about whether you are willing to support your child financially or if he will have to carry this burden on his own. Make sure your child understands the terms of the loans before he or she signs the papers. In order to repay the student’s loan sooner, you need to lead a life of frugality. So make a repayment schedule and spending guidelines together for the time of college.
Right: Show how you run your budget and cover expenses.
Wrong: Avoid demonstrating budgeting and planning skills.
Right: Encourage first job experience.
Wrong: Anxiously protect your child from his first job.
Right: Discuss your child’s study options frankly.
Wrong: Keeping quiet about the cost of college
Key principles of teaching kids financial literacy
No matter what age your child is, there are principles of developmental and supportive learning that will help you.
1. Be sincere
Don’t teach what you don’t practice. You cannot honestly answer your child’s budgeting questions if you cannot budget for your own. In this way, you will only undermine the credibility of your teaching.
2. Believe in the best about your child
A didactic and hierarchical position will only harm the child’s interest in the topic of financial literacy. Be a supportive and helpful teacher, not a strict one. Treat mistakes with understanding because they provide the most powerful educational experience.
3. Let children think and decide for themselves
Fear, anxiety, and excessive control are more likely to hinder the development of independence and self-control skills that are incredibly important in money management. Instead of your child’s own decisions, you’ll get the constant need to consult with you. But autonomy is necessary to be successful in life, so respect independence from the moment it appears. Let your child unfold as a person in their decisions.
4. Remember that you are running a marathon, not a sprint
It’s best to divide your activities into short time periods so that you and your child feel less tired. Otherwise, you might quickly lose enthusiasm, and then the child will think that money is an exceptionally difficult and boring area.
Financial literacy is taught over the years, and sometimes it can be annoying and simply boring for you. In these moments, you can take a rest and remind yourself that you are working on your child’s future. And the consequences of your tuition will be seen for a lifetime.
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