Tips For Teaching Children About Money

Have you ever watched your child as you buy something? In the beginning, they are likely looking at you as if money grows on trees and there are endless amounts of it. Why wouldn’t they? We have cash or credit cards on us, we use them to pay for goods, and we go home to use them. That seems to be the whole process – but it’s not.

Teaching your kids where money comes from can be a challenge. How do you explain to them what this green paper stuff is? And why are there coins at all? They are heavy! It is always better that they learn about money from you rather than someone else, so it’s time to have “the talk” – the talk about money.

Have a Chit-Chat

The best and most effective way to explain money to children is just by chatting. Sit down with them and tell them what money is. Bring examples! Make sure that you have as many denominations of U.S. currency as you can get ($20 dollar bill, a $5 dollar bill, a quarter, a penny, whatever you can come up with in order to show the differences).

Be sure to point out the variety in the faces on all denominations as well as the sizes of the coins. If your kids are old enough to understand more, you can even turn it into a bit of a history lesson as to who these people were and why they may have been chosen for this honor.

Display Other Countries

Have you been to other countries or do you have friends who have? Did you vacation in Canada, Mexico, London or elsewhere during your summers or spring break? See if you can find any leftover currency from those trips. Showing the kids the different appearances of money from different countries is an excellent way to explain that there is money all over the world, but it doesn’t have to look the same.

Canadian dollars are not the same value as U.S. dollars, nor are any other currencies of the world. If you want to show them the current currency exchange rate, that is also a fun way to bring a little math and wonder into the mix. All money is money, but it will be worth more or less depending on what country you are in at the time.

Money Doesn’t Grow on Trees

If there are no money trees growing in the backyard, where does it come from? While we call our dollar bills “paper money,” they are not actually made out of paper. U.S. dollar bills are made out of 75% cotton and 25% linen, as well as ink and other bits of design and threading that help the government distinguish our valid bills from fraudulent bills. If you have any cotton or linen clothing items, they might be fun for the kids to compare next to the bills.

The process for making coins is a little bit complicated, but the U.S. Mint has a fantastic video available for kids to learn more. Watch it together – you will learn something too!

Break Out Your Finances

You don’t need to show your children your income or your tax return, but it is time to show them a little bit about how the household works. Share some of your financial situations with your kids. Explain that when you go to work, you get paid for the time you contribute. If you don’t work, you don’t get paid and that means that no dollars or cents come into the house.

Create a practice scenario with one of the bills (i.e. your electric bill, etc.) where you explain how things have to go in order to make sure it is paid. Mom and/or dad have to work this many hours in order to earn enough money to pay this bill. If you get paid weekly, bi-weekly or monthly, include that as part of the lesson. You may have to wait two weeks before getting more money from your job, so it is important to make sure that the money that you were paid last week will last. This amount goes to this and that amount goes to that. No one gives you more money if you spend it all the first day, so it is important to learn how to balance. In an age appropriate way, make sure that your child understands the financial balancing act.

Let Your Kids Work for Money

Now that they understand that work can earn you money, think about setting up chores for your kids. This will be their first opportunity in life to “make a living.” It is hard to teach your kids the value of a dollar when they are just handed an allowance, so creating a system for them to earn it will set them up for paid positions down the line. You do your chores, you earn your money. No chores = no allowance.

When choosing chores for your kids, make sure that they are age appropriate. A four year old can help put napkins on the dinner table and make sure that all of their dirty clothes are in the hamper. A seven year old can set the entire table for dinner (assuming you can help them get anything needed off of a higher shelf) and sort laundry into piles. A twelve year old may be able to take out the garbage, mow the lawn and/or shovel in the winter. Tailor these suggestions to your own child and family, but in the end, they’ll likely love the responsibility just as much as the money.

Educating our children about money isn’t something that one always thinks about. We teach them to cross the street and brush their teeth, but we think of the bills as an area that is handled by the adults. And they are! But giving your child a good foundation of where money comes from and how to be responsible will set them on a healthy path for life. Take some time and really talk to them. This doesn’t have to be a one-time conversation – it can be one that happens year after year while focusing on different aspects. Keep an open dialogue and they will be well on their way to a happy financial future.