Ready to Teach Money Skills at Home?

At Freedom Debt Relief, we realize how hard it can be to balance everyday parenting duties with preparing your children for a‌ successful adulthood. As a parent, you want your children to be confident about finances but need to find a way to teach  them how to manage money. 

The value is unmistakable: Money management skills can help a child feel more confident now and steer them away from future debt problems. When a child becomes bored or frustrated, cut the lesson short and pick it up another time. Even if your child can only be engaged for five minutes at a time, it's best that they learn about personal finances from you. You can’t control everything in life, but you can control the conversations you have with your kids about money. Here are some of the most effective ways to teach financial literacy to your children, whether they’re in preschool or getting ready for college.

Age-Appropriate Money Lessons

The best way to avoid burning your kids out as you teach them about money is to make sure your lessons are age-appropriate. 

Preschool (3-5) 

This is a great age to introduce basic coin identification, counting money, and the idea that we trade money for the things we want to buy. Kids in preschool  learn through play, so now is the right time to get creative.

• Set up a mini store. Use tape to mark toys, play food, and household items with a price. Give each child a certain amount of money and allow them to "spend" it without going over budget. Have them take turns playing cashier and shopper. 

• Play the sorting game. Gather different types of coins and have the kids sort them out by size, color, and value. 

Elementary (6-11)

Sometime during elementary school, children are equipped to learn more complex concepts. For example, 1st- and 2nd-graders can understand the idea of earning money through chores. Older children, age 10 or 12, could be ready for the concept of  compound interest, especially if they have a savings account and receive interest payments.Most children may already have some familiarity with opportunity cost—the fact that if they spend their money on one thing, that money's not available to buy something else. 

• Money Bingo. Make your own bingo cards. Instead of writing "B-I-N-G-O" along the top, write "M-O-N-E-Y." In each space, mark a different amount of money. Use both coin and dollar amounts. Call out values and have kids cover the corresponding space. 

• Spending Game. Describe five items to your children and the cost of each item. For example, you may list a $1 candy bar, $1 ball, $2 container of putty, $2 coloring book, and $3 package of colored pens. Tell them they have $5 and ask them to describe how they would spend the money on the five items listed. The goal is to help them understand they can't buy it all, and that choosing to buy one thing may mean not getting to buy another (opportunity cost). 

Tweens and teenagers (12-18)

Once they're out of elementary school, your kids are ready to learn about more complex ideas and actual financial products. Now's the time to introduce bank accounts, budgeting basics, and understanding the potential dangers associated with credit and debt. 

Your tween or teen is unlikely to want to sit down and play the kinds of games they played when they were younger, so you may have to be more subtle. Invite them to play Monopoly, where players buy, sell, and trade properties, learning about the consequences of debt accumulation. Look into Bulls & Bears, a board game that teaches cash flow and financial concepts including cryptocurrency in an engaging way. The card game BeFree for Starters, recommended for age 14 and up, introduces basic financial strategies through easy-to-understand scenarios. 

Throughout it all, be prepared to answer any questions your teens may have—even if that means giving yourself a refresher course in the basics. 

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Learn the Value of Coins and Bills

If you want to teach youngsters the value of coins and bills, the desire for a new possession could turn into a valuable money lesson. The next time your child asks you to buy them something , explain how much it costs. Then, play a game. Have them count out the bills and coins it takes to cover the cost of the toy.

If your child is old enough and willing, allow them to work odd jobs around the house to earn enough money to buy something they want. Make it reasonable and simple. Money has a cause-and-effect relationship. Work, get paid. Don’t work, don’t get paid.

Sit around your kitchen table and lay out your monthly income in play money. You may have to borrow the bills from a board game. As you describe each bill, explain how much you budget for it and have them remove that amount from the income on the table. The kids will quickly learn that most, if not all, of the money goes to your expenses. This illustrates that money is finite and can't be quickly replaced.

Note about kids and finances: According to the healthcare system Children's Minnesota, there's a right and a wrong way to talk to kids about money, especially if finances are tight. Be honest, but don't tell them more than they need to know. Overloading kids with too many details (or your concerns) can scare them. The goal is to teach them without making them feel bad.

The Power of Saving

Saving is a crucial skill that, when taught young, can have an incredible impact on your child's financial future. Most banks allow you to open an account online. Begin by using  an online calculator to show your child  how much interest they could earn on their money by saving it in a bank. Add a dollar-for-dollar match on deposits if you want to sweeten the pot while teaching your child about employer matching. 

Since accounts for minors require adult oversight, you'll need to provide information on yourself as well as your child. Different financial institutions require varying documents, but you'll probably need: 

• Child's personal identification. You'll likely be asked for your child's Social Security number and one additional piece of ID, such as their Social Security card, birth certificate, or passport. 

• Your personal information. You'll be asked to provide your Social Security number and at least one form of ID. 

• Initial deposit. Some children's accounts require no initial deposit, but if the account you're opening does, it probably ranges from $25 to $100. 

If you'd prefer (or your child is too young to manage a bank account), set up a savings program at home. Begin with a jar for your child to use as a piggy bank. A glass jar not only holds their coins and bills, but also makes it easy for them to watch their money grow. 

No matter how old your child is, you can begin to teach them about compound interest by paying it yourself. Set an amount you're willing to pay, and make good on your promise once a month. Your child is never too young to learn that prioritizing saving is essential and can even prevent them from falling into high-interest credit card debt when they're older. 

Spend, Save, and Share

You could expand on the savings exercise by dividing money earned into spend, save, and share money jars, with an investing category for older kids. Have your kids add a bit of money into each category as they earn it.

Here’s how the categories work:

• Spend. Money can be used immediately to spend on what they want. 

• Save. This money is set aside for a bigger-ticket item, like a bike or video game. Estimate how much the item costs and how long it'll take them to save up. Then have them save toward their goal on a weekly basis.

• Share. This money can be used to give to those in need. Perhaps there's a specific charity your family supports. Make it special by having your child select which charitable cause they want to support.

• Invest. Older kids could learn how to invest their money in stocks. You could start with a 529 plan or a brokerage account. If your child earns money from someone other than their parents (even for babysitting or mowing lawns), they could open a Roth individual retirement account and start investing for their future. 

Teach Money Lessons Through Real-World Examples

There's nothing quite like  hands-on experience to teach a child a lesson that will stick with them. Here are some examples.

Manage the grocery budget

One expense kids are familiar with is groceries. If you want to teach them about the price of groceries, start with the products your kids typically ask you to buy. 

Go through your favorite grocery store's weekly ad or log onto its website and ask the kids to pick out which snacks they want. Once they've chosen, help them tally up the total. Next, tell them they only have a certain amount to spend on snacks. 

For example, you could limit their snack budget to $20. Are they over or under budget? If they are over budget, ask them what they can eliminate to hit their budget. This is where you can teach them how to adjust their budget to adapt to variable bills, like groceries. 

To drive the lesson home, give the kids the money they need to pay for groceries and allow them to hand it to the cashier. Any way you can make them feel like they’re part of the process helps cement the lesson in their minds. 

Chores for allowance

Most people have to work for the things they want, and starting your child off with age-appropriate chores is a good way to support that lesson. Let's say their chores are cleaning up the playroom before bed at night or taking out the recyclables. Do your child a favor and ensure the job is satisfactorily completed before you sign off on it. 

The power of a summer job

Few things make a teenager feel more independent than a job. As long as they have reliable transportation, consider allowing your teen to work each summer. With a steady paycheck coming in, your child can create a budget, determine how much they want to save, and plan out how they'll spend the rest. 

Creating their own job

If your child isn't quite old enough to work outside the home, allow them to come up with money-making alternatives, like mowing lawns or setting up a lemonade stand. It's all about gaining the satisfaction of earning their own money and deciding the best way to use those funds. 

Once your child is working for money, it may be easier for them to understand that earning can sometimes lead to overspending, and overspending can lead to the need for debt relief. As they plan for how they want to spend their money, emphasize the importance of living below their means and stashing some money for a rainy day. 

Open an investment account

There's nothing like a real-life investment account to teach children about the power of compound interest, the importance of remaining cool while the market is wonky, and how investors go about choosing the right investments. The most common type of investment account for minors is a custodial account. As the custodian, you'll manage the account until the child reaches either 18 or 21 depending on the state. (Some states allow extending the age of transfer to 25.) 

You may want to start quite small, with investments in fractional shares,  partial shares of a whole stock. Let's say your child wants to buy stock in Target but doesn't have enough to purchase an entire share. With a fractional share, they can buy a small portion of a single stock. 

Companies like Vanguard, Charles Schwab, and Fidelity make it easy to set up a custodial account for your child. 

Involve Kids in the Monthly Budget

Each month, you manage your finances with a household budget. Let your kids take part by making budget discussions a family activity. The point is to demystify money and develop some comfort and ease around financial discussions. Most people develop money beliefs and habits in childhood and carry them  into adulthood.

Open conversations could lead to teachable moments. Your kids might not realize how much it takes to keep the lights on or why anyone would ever need debt settlement. Casually allow them to be part of the discussion so they learn to view money management as a routine activity. The atmosphere you create will likely shape how your children feel about money into adulthood. Provide them with the information they need to feel relaxed and confident.

Kick Off a Money Movie Marathon

Financial movies and documentaries could have an impact on your family. There are several movies that can spark healthy financial conversations. Teens may enjoy movies like The Big Short or The Pursuit of Happyness.

If you have young children, let them watch The Muppet Christmas Carol, a cautionary tale of the dangers of greed and the joy associated with generosity. Disney's Robin Hood is another good option, addressing the issue of income inequality and introducing the concept of taxes. 

Brush Up On Your Personal Finance Skills

No one is born a financial expert, and we all learn about personal finances one lesson at a time. No matter what's going on in your life, it's possible to hone your money skills. The more healthy financial lessons you learn, the more you can pass onto future generations.