6 Lessons About Money and How to Teach Them to Your Children

Help your kids be financially literate with these strategies on how to save, spend and borrow money

Little girl counts coins

Maybe you’ve started to give your little ones an allowance, or they’ve been pointing to items at the store that they want. Ah, so the lifelong journey of your child’s relationship with money begins! Here are six essential money lessons for kids, and how you can go about teaching your kids about money:

Lesson #1: How to save for a goal

Instead of thinking of money as something you either have or don’t have, show your kids how they can save for something specific. This will teach them that instead of treating money as an elusive creature that disappears and reappears randomly, that they can have some control over their spending.

How to teach it:  Introduce "the envelope system" to your children at an early age. This is a great way to teach your kids to save and how money works. You can start by designating separate envelopes, jars or piggy banks for saving and spending.

Once your children get more comfortable with this method for saving, you can add more envelopes into the mix for giving and several different goals, such as a toy they really want or a souvenir fund for a day trip to the zoo. Children need to realize that once their money has been spent, there is simply no more. This way they realize that there is a value to their money, and that they need to spend it wisely.

It’s also a good opportunity to use basic math, such as adding and subtracting, to figure out how much they’ll need to save. By helping your children get more comfortable with numbers at an early age, they’ll be better equipped to get their heads around more complex concepts, such as how interest and loan repayments work, when they’re older.

If you’re a member of a credit union, you can open a joint account with your child to get into the habit of saving money. You can contact your local branch to get more information about opening an account.

Lesson #2: How to earn money

Instead of handing out money to your kids, teach them how it can be earned. You definitely don’t want them to treat you like the Bank of Mom and Dad. By teaching them how to make money, they’ll understand the value of money and how earning it leads to self-sufficiency, independence, and resourcefulness.

How to teach it: When your kids are ready to receive an allowance, talk to them about what housework you’d like them to do in exchange for their allowance. How often will they receive an allowance? As a parent, it’s important to be consistent in how often you “pay” them. That will help them learn how the flow of money works, and how to budget accordingly. Ask them what they plan to use the money for, and give them tips and ways they can save money for future goals.

Get your kids excited about finding other ways to earn a buck. Have a yard sale, set up a lemonade stand, have them help wash cars.

Little boy with cash money

Lesson #3: How to spend smart

Show your child how they can make the most of their money, and to also spend in a way that adds the most value to their life.

How to teach it: This can be taught with everyday life lessons. Trips to the grocery store are a great time to teach them how to shop for value. If you can afford the time, do a quick comparison together in the cost and size between two different jars of pasta sauce. Which item will they get the most bang for their buck? Will your family end up using all the sauce? If not, maybe it’s best to get the smaller-sized jar.

Lesson #4: The difference between needs and wants

This is an essential lesson, and the earlier your child learns this, the better. Understanding the true difference between what they really want and need will help them make better decisions with money. It will also teach them about delayed gratification, buying based purely on emotion and curbing their impulses.

How to teach it: When your children ask you for something next time you’re out shopping, ask them if they really need it or just want it? Is it something they can do without, or would it be really hard to go without this item? This can treated like a game to teach your kids financial literacy.

Also, try playing a game with them where you don’t buy the item, and see if they remember about it in a week or so. I also recommend the Money Mammals’ Needs Vs. Wants app, which helps your kids learn about this fundamental money concept through fun games. 

Lesson #5: How to share their money

Our attitudes about money are formed at an early age, and a lesson on how giving their money makes a difference in the lives of others and the world is a powerful one.

How to teach it: Create a savings jar to specifically to donate to a cause they care about or save up for a gift for sibling or classmate. Another idea is to devote a savings jar for gifts. It’s also a prime opportunity to teach them how to be resourceful and get creative with finding different options. Talk to them if they would rather volunteer or make a gift instead of spending money to buy one. This will show them that there’s a clear trade-off between their time and money.

Lesson #6: How to borrow money responsibly

While this is a somewhat complex topic, teaching your children the ins and outs of borrowing money and how to do it responsibly is something that will serve them well throughout their lives.

How to teach it: You can offer to give them a loan for a bike or computer if they save up for half on their own. Sit down with them and do some research on how much something costs, and if they can get it on sale. Your kids should fully understand the discomfort of the loan payments, interest, and opportunity cost that comes with debt.

If you feel comfortable doing so, talk to your kids about how you borrow money and how it affects your life. Having debt, after all, is a part of life for most grownups. Do you have an auto loan, or mortgage? What does it mean to have a loan? What are you responsible for?

Teaching your kids about how money works may take an effort, but will pay off in the long run. Taking the time now to actively and purposefully teaching your kids money basics at an early age will set them up to be pros at managing their finances in adulthood.

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