How to Help Kids Understand Financial Literacy

Kids don’t always understand why mom and dad can’t buy the latest brand-name in clothing, upgrade to the newest tech gadget or swap at-home meals for eating at a restaurant. But parents can teach these lessons in fun ways to help kids get a better grasp of the meaning of money. As every parent knows, “money doesn’t grow on trees!” Instead, money must be earned.

When you feel like the time has come for your kids to start learning about managing money, savvy spending and smart savings, here are five activities, games and habits to get them on their way to making sense of dollars and cents.

Penny Jars

Do you hate all those copper pennies? They seem worthless, right? Oh, but they aren’t. Pennies add up and can be a fun intro to savings for young kids. We’ve all stumbled on the stray penny on the sidewalk or at a store. And your kids probably recite the old rhyme: “find a penny, pick it up and all the day you’ll have good luck.” Or maybe they make a wish if they find that coin on heads.

Those pennies might not hold good luck, but they are the beginning of a small savings game. When kids spot those pennies, encourage them to pick them up. While one penny won’t buy much, all coins eventually add up to dollars. When you’re given change that includes pennies, pass them along to your kids. You can teach kids the valuable lesson that a little money set aside to tomorrow, can add up to something valuable over time. This is how a child’s savings can begin. Here’s a guide to help kids understand financial literacy.

So where do you put all those pennies? A jar, of course! But not just any jar…because this special jar is going to be a craft project! So here’s what you need:

How to Decorate A Savings Jar

•         1 Jam jar (or any jar…maybe it once housed pickled relish!).
•         Fabric, burlap or felt
•         Stickers and markers (permanent is best, but make sure kids wear a shirt over clothes when they use them!)
•         Glue (hot glue works long-term, but only a parent should use a glue gun)

Let kids pick out the fabric for their jar. If you have an old shirt, you can cut this up and use it for your jar. Fun prints are great, but solid colors allow kids to add their own designs. Next, deposit the glue on the jar and slowly cover the jar with the fabric; make sure to place the fabric before that glue hardens, though (and hot glue can harden quickly!). If you are using a solid color for your jar, let kids decorate the fabric before gluing, because creating designs on a sculpted surface can be cumbersome! You also may glue a sign over the fabric that says “Penny Jar” or “Savings.” Now start adding coins to that jar!

Introduce an Allowance

Are your kids constantly asking for the latest and greatest toy or gadget? Or maybe they want online spending money for a popular video game (those game dollars let them buy new upgrades, etc.). Make them earn that money! Kids can get a better grasp of the price of a ‘want’ by spending their own money to make the purchase. If you have the extra money to allocate for your child’s allowance, this is a great way to help them become a bit more understanding about their own finances.

So how much money should you pay them? And what should they do to earn that money? Every family’s budget is unique, so how much you can pay for an allowance is dependent on your own situation and comfort zone. But whatever you pay them each month, they should work to earn their allowance. No, this isn’t about child labor! Kids should have a list of chores that they can do to help around the house. Keep chores age-appropriate…and safe!

Common Household Chores for Youngsters:

•         Making their bed
•         Using a feather duster to clean a nightstand or bureau.
•         Picking up toys and books.

For Older Kids:

•         Setting the table
•         Loading the dishwasher.
•         Taking out the trash.
•         Assisting with yard work.
•         Helping to care for a family pet (food, walking, etc.)

Teach Accounting (and Accountability) 101

So where does that allowance go? Teach children to save their money in a piggy bank or savings account. Help them add up that money and account for each cent; this way they understand how much they’ve earned. You can help them create an online spreadsheet to track their earnings or just go old-school with a paper chart.

As they earn more money and savings accumulate, they may ask to spend it. This is their money, and part of the lesson is teaching responsibility. When they ask for a ‘want’ and they’ve saved for it, let them decide if they want to make the purchase. Some kids will realize that one purchase will drain all their savings. But others may not care. However, they use that money, help them understand what their choice means. If they spend it all, sit down and explain how this would affect YOUR household’s bottom line if, as parents, you spent all your earnings on wants. Decisions are teaching moments!

Allowance Accountability

•         Save earnings in a bank account (take your child to the bank for the full experience) or just use a piggy bank
•         Help kids account for their earnings (use a spreadsheet or just use a paper chart)
•         Use spending as teachable moments
•         Kids who prefer to save also should be taught how those funds can grow into something bigger (maybe even a car down payment as a teen!)

Host a Game Night

Maybe you don’t have the money for an allowance. Many families don’t, and there are still other ways to help kids learn about money and finances. Fun and simple board games like Life and Monopoly help children understand saving and spending in a fun way.

If you want to teach these basic skills to your children, host a family game night once a week. Play a finance-based game and help kids learn about what that money means. In the game of Life, they may have kids and choose a career. In Monopoly, they will learn about buying property. You may have to help kids keep track of that paper money, though!

Board Games for your Game Night:

•         Monopoly
•         Life
•         Pay Day (ages 8 and up)
•         Buy it Right (recommended by The Balance)
•         Money Bags (teaches money math, per The Balance)
•         Monopoly Fortnite (because Fortnight is all the rage!)
•         Big Money (ages 8 and up)

Talking about Family Finances

Older kids—especially teens—might benefit from an open talk about family finances. However, not every parent is comfortable talking about salaries and debt. So how you discuss your family’s finances is really a personal decision. Some parents lay everything out in the open—salary, monthly expenses, etc. This openness can help teens get a better grasp as to why parents make the decisions they make regarding purchases.

If you’re unsure what to discuss with kids, you can always start small. When you’re making a big purchase, take kids along and explain the process to them. This might even be just a basic household purchase like a mattress or a new dishwasher. When you’re out shopping, talk to them about budgets and why you choose the item. If you’re comparing prices and features, include kids on the discussion and help them understand why certain features (including price!) are important. Even simple moments like this can teach kids the value of a purchase and help them ask important questions before they make a purchase, too.

In-Store Conversations

•         Talk to kids about your purchase budget
•         Explain payment plans (if you’re using them)
•         Help kids understand how to cost compare when shopping

Financial literacy can (and should!) begin at a young age. Every family’s financial situation and comfort level talking about finances is unique, but basic money lessons are important for kids and helps prepare them for managing their money as adults.

These lessons shouldn’t be classroom boring, though. Children and teens should have fun learning how to spend smartly, save wisely and account for those dollars and cents with accuracy. Younger kids can begin to save by collecting pennies and change, and older kids may benefit from earning an allowance. Help kids add up their savings by using a spreadsheet or a paper graph. When they choose to spend those earnings, discuss how their purchase may affect their bottom line in the future (or how spending all that money would affect their finances as adults).

Regardless of how you choose to begin those early money management skills, start them young. Because kids who gain financial literacy at an early age will take those lessons with them into adulthood!