How to teach financial literacy to kids of all ages

Knowing when and how to teach children about money is difficult. We want our children to be prepared when the face “the real world,” but we don’t want to do anything to make money a cause of stress. It is a balance that must be struck.

Luckily, there are opportunities to teach children of all ages – from young grade school children to graduating high-schoolers – about financial literacy in a way that empowers them rather than scares them. Instilling good financial habits from a young age will ensure they will make smart decisions when face with real-life problems and situations.

In today’s blog, we have broken down the different ways you can teach your child about money at every stage.

Grade School (ages 4 – 9)

The difference between wants and needs

Now is a good time to introduce your child to wants vs. needs. Yes, they need new shoes because they grew out of their old pair, but they don’t need the light-up shoes. Just asking the simple question “do you want or need this item?” can help them begin discerning between the two states.

Money is finite and the opportunity cost of an item

At some point, we’ve all believed our parents’ credit card was a source of endless money. Teaching children about the finite nature of money is as simple as giving them an allowance for doing chores. When they want to buy things like a candy bar or a new toy, let them know they can use their chore money to purchase the item. As they to use their chore money to make purchases, they will develop the skill of discerning if an item is “worth it” or not based on the amount of work they put into raising the money.

Delayed gratification

Delayed gratification is a skill that needs to be built over a long period of time. Starting this skill young will help your children a lot when they are adults and must save for big purchases like down payments and vacations. When your children want to get a more expensive item, such as a video game electronic, let them know they must save their allowance money to buy it. Help them come up with a plan to save (how much are they putting aside each week and how long will it take to raise the money) and encourage them to stick to it.

Middle School (ages 10 – 13)

How interest works and saving money

Now is a good time to teach your children about interest and saving their money. Put some money in a high-interest savings account that can’t be touched for a while, such as a Certificate of Deposit. Check in on the account with them periodically and show them the dividend payments and how they now have more money in the account than what they started with. This also helps build the skill of delayed gratification.

Trustworthy vs. untrustworthy retailers

Online shopping is a huge part of our culture today, so knowing how to safely shop is something everyone needs to learn. They may not be online shopping now, but once they get to high school, online shopping will be a big part of their shopping habits. Now is the time to teach them how to spot a scam or untrustworthy retailer. Check out this article by CNBC about the hallmarks of a fraudulent retailer.

High School (ages 14 – 17)

Credit cards

Once your children turn 18, they will be inundated with credit card offers. Credit cards can be an excellent way to help a young adult build credit, and they should not be a source of fear or anxiety like many people assume. That said, if handled improperly, it can bury the user in a mountain of debt. Rather than shield your child from credit cards, it is better to teach them how to properly use one. Check out this excellent article on the lessons every teen needs to know about credit cards. The most important less on you can teach them is you must only spend what you can afford to pay back. When using a credit card, you are borrowing against your future self. Don’t borrow more than you can afford.

The basics of budgeting

Your teen may or may not have a job, but it is important for them to understand the basics of budgeting before they go off into the real world. When your teens are getting ready to go to college, sit down with them and help them figure out a budget for their upcoming semester. Most experts believe the 50/30/20 budgeting method to be the best. Using a spreadsheet or simply pen and paper, help them come up with a basic budget to help guide them.

How to do taxes

Taxes. We all hate them. We hate doing them and most of us procrastinate until April 14th to pull up TurboTax. Although we’d all like to do without, they’re inevitable, and it is important to learn how to properly do them. Once your children are teenagers, have them sit with you while you fill out your taxes. Some parents may feel uncomfortable with their children knowing how much money they make, but having an open and frank discussion about income without judgement attached is not a bad thing. Having your children be a part of filing taxes will make them much more prepared when it is their turn to file their own taxes for the first time.

Financial literacy is empowering!

Money and finances are so stigmatized in our culture it becomes difficult to pass on our knowledge to the next generation. Being open about money without the stigma attached will help your children be much more prepared when they are faced with bigger financial decisions as an adult.

Financial literacy shouldn’t be scary. Knowledge is the most important thing with which we can arm our young generation.