Sandra Bernier
- Feb 18
- 19 min read

Money Matters: A Guide to Teaching Financial Literacy to Kids

Updated: Apr 28

Teaching children financial literacy is an essential responsibility that can help them develop good financial habits that will serve them well throughout their lives. Financial literacy is the knowledge and skills necessary to make informed decisions about money, including the basics of personal finance, such as saving, budgeting, investing, and debt management.

Start Early

Teaching children about money is a valuable life skill that can be introduced from a young age. With basic concepts of saving and spending, even young children can begin to develop a healthy financial mindset that can benefit them in the long run. Introduce the concept of money to children by teaching them about coins, bills, and denominations. Encourage children to save a portion of their allowance or gift money and help them set financial goals.

Introduce the concept of money to children:

One way to start teaching children about money is to introduce them to the different types of currency. Children can learn about coins, bills, and denominations by playing with toy money or using real money in small amounts. By teaching children to identify the different types of currency, they will gain a better understanding of how money works and its importance in our daily lives.

Encourage children to save a portion of their allowance or gift money:

Another way to teach kids about financial literacy is by encouraging them to save a portion of their allowance or gift money. By setting aside a portion of their money, children will learn the value of delayed gratification and how saving can help them achieve their financial goals. Parents can help children set financial goals by discussing what they would like to save for, such as a new toy, a bike, or a trip to a special place.

Help children set financial goals:

Parents can help children set financial goals by discussing what they would like to save for, such as a new toy, a bike, or a trip to a special place. By setting financial goals, children can learn the importance of planning and budgeting, which are key skills for managing money as they grow older. Encourage children to save a small portion of their money each week or month, and help them track their progress toward their goals.

In summary, starting early is an important step in teaching children about financial literacy. By introducing the concept of money to children, encouraging them to save a portion of their allowance or gift money, and helping them set financial goals, parents can lay the foundation for good financial habits that will last a lifetime.

Use Age-Appropriate Materials

When teaching financial literacy to children, it's essential to use materials that are age-appropriate. Younger children may benefit from books or games that teach basic money concepts, while older children may be ready for more advanced lessons on investing or budgeting. Use materials that are engaging and interactive to help children understand financial concepts.

For younger children:

For younger children, parents can use games and activities that focus on counting and identifying different types of coins and bills. Board games such as "Money Bags" and "The Allowance Game" can help teach children how to count money and make change. Parents can also use play money or coins to practice basic math skills and help children learn to recognize the different denominations.

For older children:

For older children, parents can introduce more complex financial concepts such as budgeting, investing, and saving. Parents can help children create a budget for their allowance or earnings from a part-time job, and show them how to track their spending and savings. Parents can also introduce the concept of investing, such as how stocks and bonds work, and the potential risks and rewards of investing.

Using age-appropriate materials is key when teaching kids about financial literacy. By using games and activities that are suitable for their age and developmental level, parents can help children learn about basic financial concepts and develop good financial habits that will benefit them in the long run. As children grow older, parents can introduce more complex topics such as budgeting, saving, and investing, and use online resources to make financial education fun and engaging.

Be a Good Role Model

Children learn a lot from their parents' behaviors and attitudes towards money. Set a good example by practicing good financial habits, such as living within your means, saving for emergencies, and investing for the future. Involve children in financial decision-making to help them understand the process.

Here are some ways that parents can be a good role model for their children:

Be transparent about your own financial decisions:

Parents can explain to their children why they make certain financial decisions, such as why they save money for emergencies, or why they avoid taking on debt.

Set financial goals:

Parents can show their children how to set financial goals and work towards achieving them. For example, parents can save for a family vacation and involve their children in the process.

Avoid impulse purchases:

Parents can model good spending habits by avoiding impulse purchases and by planning their spending ahead of time.

Teach the value of money:

Parents can teach their children the value of money by involving them in household budgeting, explaining how bills are paid, and how to make wise spending decisions.

Show the importance of giving back:

Parents can also model the importance of giving back to the community by donating to charity or volunteering their time.

Being a good role model is essential when teaching children about financial literacy. By modeling good financial habits and values, parents can instill a sense of responsibility and discipline in their children that will benefit them for a lifetime.

Teach the Basics of Budgeting

Budgeting is a fundamental aspect of personal finance. Teach children how to create a budget by identifying income and expenses and setting financial goals. Encourage children to prioritize their spending and avoid impulse purchases. Introduce children to budgeting apps or tools that make budgeting more engaging.

Here are some ways parents can teach the basics of budgeting to their children:

Start with the basics:

Parents can start by explaining to their children what a budget is and why it is important. They can use age-appropriate language and examples to help their children understand.

Involve children in the budgeting process:

Parents can involve their children in the family budgeting process by discussing household expenses and how money is allocated. They can also ask their children for input on how to save money or reduce expenses.

Set spending limits:

Parents can set spending limits for their children's allowance or other income sources, and help them create a budget for their spending. This can include categories such as saving, spending, and giving.

Encourage savings:

Parents can encourage their children to save a portion of their income by setting savings goals and offering incentives for meeting those goals. This can help children develop a habit of saving that will serve them well in the future.

Review and adjust the budget:

Parents should review the budget with their children regularly to ensure they are staying on track and make adjustments as needed. This can help children learn the importance of tracking expenses and making adjustments when necessary.

Teaching children the basics of budgeting can help them develop good financial habits that will benefit them for a lifetime. By involving children in the budgeting process and setting spending limits, parents can help their children develop responsible money management skills and a sense of financial responsibility.

Introduce the Concept of Saving

Saving is a crucial part of financial literacy. Teach children the importance of saving by encouraging them to set aside a portion of their income in a savings account. Help children understand the power of compounding by showing them how their savings can grow over time. Set savings goals with children and reward them when they achieve them.

Make it fun:

Saving doesn't have to be boring. Parents can make saving fun by using games or activities to help their children understand the concept. For example, parents can set up a savings jar and encourage their children to add to it regularly. They can also help their children set savings goals and offer incentives for reaching those goals.

Be a good role model:

Children learn by example, so it's important for parents to model good saving habits. Parents can demonstrate the importance of saving by talking about their own savings goals and how they are working to achieve them.

Help children set goals:

Setting savings goals can help children understand the value of saving and the importance of delayed gratification. Parents can help their children set realistic savings goals and encourage them to work towards achieving them.

Teach children to prioritize:

Parents can teach their children to prioritize their spending by encouraging them to save for the things that are most important to them. This can help children develop a sense of financial responsibility and learn to make wise choices when it comes to money.

Make it a habit:

Saving should be a regular part of a child's financial routine. Parents can help their children make saving a habit by setting up a regular savings plan and encouraging them to save a portion of their allowance or other income sources.

By introducing the concept of saving to children, parents can help their children develop good financial habits that will serve them well throughout their lives. By making saving fun, being a good role model, helping children set goals, teaching them to prioritize, and making it a habit, parents can help their children develop a healthy relationship with money and a sense of financial responsibility.

Discuss the Importance of Investing

Investing is an essential aspect of long-term financial planning. While children may not be ready to invest in the stock market, they can learn about the benefits of investing in a college savings plan or a retirement account. Teach children about the different types of investments, such as stocks, bonds, and mutual funds.

It's important to explain to children that investing is a way to put their money to work, allowing it to earn interest or grow in value. They can start small by investing in a savings account or a low-risk investment such as a mutual fund.

You can also discuss the different types of investments, such as stocks, bonds, and real estate, and how they work. You can explain the concept of risk versus reward, and how investments with higher potential rewards often come with higher risk.

Additionally, you can talk about the importance of diversification, or spreading out investments across different types of assets and industries to minimize risk. It's important to emphasize that investing is a long-term strategy and that it's important to have a plan in place.

By teaching children about investing, you can help them develop good financial habits and prepare them for a secure financial future.

Teach Children About Debt

Debt is a part of life, but it's important for children to understand the risks and benefits of borrowing money. Discuss the differences between good debt (such as a mortgage or student loan) and bad debt (such as credit card debt). Teach children the importance of making on-time payments and avoiding late fees.

You can start by introducing the concept of borrowing and explaining how it works. You can use simple examples, such as borrowing money from a friend or a family member, to help children understand the concept. It's also important to explain the difference between secured and unsecured debt and the impact of interest rates on the amount owed.

It's also important to discuss the various types of debt that children may encounter in their lives, such as student loans, car loans, and credit card debt. You can explain the benefits and drawbacks of each type of debt and how they can impact their credit score.

Teaching children about the importance of responsible borrowing and the consequences of failing to repay debt is also crucial. You can discuss the impact of missed payments, defaulting on loans, and the potential for debt to accumulate over time.

It's important to emphasize the importance of using debt wisely and only borrowing what they can afford to repay. You can help children understand the importance of budgeting and managing their finances to avoid falling into debt.

By teaching children about debt, you can help them make informed financial decisions and develop healthy financial habits that will serve them well throughout their lives.

Teaching Children about Credit Scores

Teaching children about credit scores is an important aspect of financial literacy. A credit score is a number that represents an individual's creditworthiness based on their credit history. It is used by lenders, landlords, and other entities to determine an individual's financial risk when considering a loan or rental application.

To help children understand credit scores, parents can start by discussing the basics of credit history. Credit history is the record of an individual's borrowing and payment activity, which is used to calculate their credit score. Parents can explain that factors such as payment history, credit utilization, and length of credit history are important in determining a credit score.

Parents can also encourage their children to practice responsible financial habits that can positively impact their credit score in the future. This can include paying bills on time, avoiding high levels of debt, and using credit cards responsibly.

By teaching children about credit scores, parents can help them establish good financial habits early on and prepare them for a financially healthy future.

Discussing Payment Methods

Discussing payment methods is another important topic when teaching financial literacy to kids. It is important for children to understand the different types of payment methods available and the pros and cons of each one.

Parents can start by explaining the concept of cash and how it works. Cash is a physical form of money that can be used to make purchases. Parents can teach their children about the value of each bill and coin, and how to count and use them.

Next, parents can discuss debit cards and how they work. Debit cards are linked to a bank account and allow for electronic transactions. Parents can teach their children about how to use a debit card responsibly and how to avoid overdraft fees.

Parents can also discuss the use of credit cards and how they differ from debit cards. Credit cards allow users to borrow money and make purchases, but they charge interest on unpaid balances. Parents can teach their children about the importance of paying off credit card balances on time to avoid high interest charges.

When discussing payment methods with children, it is important to emphasize the importance of responsible spending and avoiding unnecessary debt. Parents can set spending limits and teach their children how to prioritize spending to meet financial goals.

By teaching children about different payment methods and how to use them responsibly, parents can help their children establish good financial habits early on and prepare them for a financially healthy future.

Addressing Taxes

Addressing taxes is another important topic when teaching financial literacy to teens. Taxes are an integral part of personal finance and it is important for teens to understand the role of taxes in their financial lives.

Parents can start by explaining the basics of income taxes. Income taxes are the taxes that individuals pay on their earnings. Parents can teach their children about the different types of income, such as wages, salaries, and tips, and how they are taxed.

Parents can also discuss the importance of filing a tax return. A tax return is a form that individuals submit to the government, which reports their income and calculates the amount of tax they owe. Parents can teach their children about the process of filing a tax return and the consequences of not filing on time.

It is also important for children to understand how taxes are used to fund government programs and services. Parents can teach their children about the different types of taxes, such as income tax, sales tax, and property tax, and how they are used to fund schools, roads, and other public services.

When addressing taxes with children, it is important to emphasize the importance of responsible financial management and budgeting. Parents can explain that taxes are an important part of personal finance and that understanding how to manage them responsibly can help achieve financial goals.

Overall, by teaching children about taxes and their role in personal finance, parents can help their children establish good financial habits early on and prepare them for a financially healthy future.

Prioritizing Spending

Prioritizing spending is a crucial aspect of financial literacy and an important topic to teach children. It is important for children to understand the difference between needs and wants, and how to prioritize their spending to meet their financial goals.

Parents can start by discussing the basics of budgeting with their children. A budget is a plan that outlines income and expenses, and helps individuals to manage their money effectively. Parents can teach their children about the importance of creating a budget, and how to create a budget that is realistic and achievable.

Next, parents can teach their children about needs and wants. Needs are essential items such as food, shelter, and clothing that are necessary for survival. Wants are items that are not essential, but desirable, such as electronics or toys. Parents can help their children to differentiate between the two, and to prioritize spending on needs before wants.

Parents can also teach their children about saving money and the importance of setting financial goals. Parents can encourage their children to set savings goals for specific items or experiences, such as a new bike or a family vacation. This can help children to understand the value of saving and the importance of prioritizing spending to reach their financial goals.

When discussing prioritizing spending with children, it is important to emphasize the importance of responsible financial management and avoiding unnecessary debt. Parents can help their children to understand the impact of high-interest debt, such as credit card debt, and to prioritize paying off debt before spending on wants.

Teaching children how to prioritize spending and make responsible financial decisions, parents can help their children establish good financial habits early on and prepare them for a financially healthy future.

Different Ways to Earn Money

Teaching children about different ways to earn money is an important aspect of financial literacy. By understanding the different ways to earn money, children can start to develop an appreciation for the value of work and learn how to save and spend money responsibly.

There are many ways for children to earn money, depending on their age, interests, and skills. Here are some ideas for different ways to earn money:

Allowance:

Giving children a weekly or monthly allowance is a great way to teach them the value of money and the importance of budgeting. Consider tying the allowance to specific chores or responsibilities to help children understand that money is earned through work.

Babysitting:

For older children, babysitting can be a lucrative way to earn money. Encourage your child to take a babysitting course to learn important safety and childcare skills, and to network with friends and family to find potential clients.

Pet sitting or dog walking:

If your child loves animals, pet sitting or dog walking can be a fun and rewarding way to earn money. Encourage your child to start with friends and family members who need pet care, and to build a network from there.

Yard work or house cleaning:

Children can also earn money by doing yard work or house cleaning for neighbors or family members. This can include tasks like mowing the lawn, raking leaves, shoveling snow, or cleaning bathrooms.

Selling goods:

For children who enjoy crafts or baking, selling their creations can be a fun way to earn money. Encourage your child to set up a booth at a local craft fair or farmers market, or to sell items online through platforms like Etsy.

It's important to encourage children to find ways to earn money that are enjoyable and rewarding. This will help them develop a positive attitude toward work and a sense of accomplishment as they save and spend their earnings. By teaching your children about different ways to earn money, you can help them develop the skills and knowledge they need to become financially responsible adults.

Compound Interest

Compound interest is an important concept in financial literacy that can have a significant impact on a child's long-term financial well-being. Understanding compound interest is essential for teaching children how to save and invest their money effectively.

Compound interest is the interest earned on the initial principal amount as well as on the accumulated interest. In other words, when you earn interest on an investment, that interest is added to the original principal, and future interest is calculated based on the new, higher balance. This creates a compounding effect that can significantly increase the value of an investment over time.

For example, let's say your child invests $1,000 in a savings account that pays 5% interest annually. After the first year, the account balance will be $1,050 (the original $1,000 plus $50 in interest). In the second year, the interest will be calculated based on the new balance of $1,050, resulting in $52.50 in interest. By the end of the second year, the account balance will be $1,102.50. This compounding effect continues over time, with the interest earned on interest growing exponentially.

Teaching children about compound interest can help them understand the importance of starting to save and invest early. The longer they keep their money invested, the greater the impact of compound interest will be. Encourage your child to start saving and investing as soon as possible, and to make regular contributions to their savings and investment accounts to maximize the benefits of compound interest.

It's also important to teach children about the different types of investments that offer compound interest, such as savings accounts, CDs, and mutual funds. Help your child understand the risks and rewards associated with each type of investment, and encourage them to do their research and seek professional advice when making investment decisions.

Compound interest is a powerful tool for growing wealth over time, and an essential concept for teaching children about financial literacy. By understanding the benefits of compound interest and the different types of investments that offer it, children can make informed decisions about saving and investing their money to achieve their long-term financial goals.

Giving to Charity

Teaching children about the importance of giving to charity is an important aspect of financial literacy. Not only does giving to charity help those in need, but it can also teach children about empathy, generosity, and responsibility.

One of the best ways to teach children about giving to charity is to lead by example. You can involve your children in your own charitable giving by making donations together as a family, volunteering your time and skills, or participating in fundraising events. This can help your children see firsthand the impact that their donations can make and instill a sense of pride in their contribution to society.

You can also encourage your children to set aside a portion of their allowance or earnings to donate to a charity of their choice. This can help them learn the value of money and the importance of prioritizing charitable giving as part of their financial plan.

When discussing giving to charity with your children, it's important to help them choose a cause or organization that aligns with their values and interests. You can research different charities together and help your child understand the impact that their donations can make on the community and the world.

Teaching your children about giving to charity can also involve educating them on the tax benefits of charitable donations. While this may not be a primary motivator for charitable giving, it can help children understand the financial benefits of charitable donations and the potential tax deductions that can be claimed.

Teaching children about giving to charity is an important aspect of financial literacy that can help them become responsible and compassionate adults. By leading by example, involving your children in your own charitable giving, and encouraging them to donate a portion of their own money to causes they care about, you can help your children learn the value of giving back to their community and making a positive impact on the world.

Conclusion

Teaching financial literacy to children is an important responsibility that can help set them up for a successful financial future. By starting early, using age-appropriate materials, and being a good financial role model, we can help children develop the knowledge and skills they need to make informed decisions about money. With a solid foundation in financial literacy, children can grow up to be financially responsible adults.

FAQ:

Q: What is financial literacy?

A: Financial literacy is the knowledge and skills necessary to make informed decisions about money, including the basics of personal finance, such as saving, budgeting, investing, and debt management.

Q: Why is it important to teach financial literacy to children?

A: Teaching financial literacy to children is important because it can help them develop good financial habits that will serve them well throughout their lives. By starting early and teaching children the basics of personal finance, we can help them make informed decisions about money and avoid financial mistakes.

Q: How early should I start teaching my child about financial literacy?

A: It's never too early to start teaching children about money. Even young children can learn the basics of saving and spending. Introduce the concept of money to children by teaching them about coins, bills, and denominations. Encourage children to save a portion of their allowance or gift money and help them set financial goals.

Q: What are some age-appropriate materials for teaching financial literacy to children?

A: When teaching financial literacy to children, it's essential to use materials that are age-appropriate. Younger children may benefit from books or games that teach basic money concepts, while older children may be ready for more advanced lessons on investing or budgeting. Use materials that are engaging and interactive to help children understand financial concepts.

Q: How can I be a good financial role model for my child?

A: Children learn a lot from their parents' behaviors and attitudes towards money. Set a good example by practicing good financial habits, such as living within your means, saving for emergencies, and investing for the future. Involve children in financial decision-making to help them understand the process.

Q: How can I teach my child about debt?

A: Debt is a part of life, but it's important for children to understand the risks and benefits of borrowing money. Discuss the differences between good debt (such as a mortgage or student loan) and bad debt (such as credit card debt). Teach children the importance of making on-time payments and avoiding late fees.

Q: When should I start teaching my child about credit scores?

A: You can start teaching your child about credit scores as early as middle school. It's important to help them understand what a credit score is, how it's calculated, and why it's important for their financial future.

Q: How can I discuss payment methods with my child?

A: You can discuss payment methods with your child by explaining the pros and cons of different options, such as cash, checks, credit cards, and mobile payments. You can also teach your child how to budget and track their spending using different payment methods.

Q: How can I address taxes with my child?

A: You can help your child understand taxes by explaining how they are calculated, what they are used for, and how they impact their income and expenses. You can also teach your child about the different types of taxes, such as income tax, sales tax, and property tax.

Q: How can I teach my child to prioritize spending?

A: You can teach your child to prioritize spending by setting financial goals, making a budget, and distinguishing between needs and wants. You can also encourage your child to save money for important expenses and to consider the long-term impact of their spending choices.

Q: What are some different ways for children to earn money?

A: Children can earn money by doing chores around the house, running a lemonade stand, selling items online, babysitting, pet-sitting, or doing odd jobs for neighbors and friends. You can also encourage your child to develop skills or talents that they can monetize, such as tutoring or creating and selling crafts.

Q: What is compound interest and how can I explain it to my child?

A: Compound interest is the interest earned on both the principal amount and the accumulated interest of an investment. You can explain compound interest to your child by using examples, such as a savings account or a certificate of deposit, and demonstrating how interest can grow over time.

Q: How can I teach my child about giving to charity?

A: You can teach your child about giving to charity by discussing the importance of philanthropy, identifying causes or organizations that align with their values, and setting a budget for charitable donations. You can also encourage your child to volunteer their time and talents to help others in need.

Q: What are some resources I can use to help me teach my child about financial literacy?

A: There are many resources available to help parents teach their children about financial literacy, such as books, websites, apps, and financial education programs designed specifically for children and families. You can also seek the advice of a financial advisor or educator to help you develop a customized financial education plan for your child.

Q: Why is teaching financial literacy to children important?

A: Teaching financial literacy to children is important because it helps them develop important life skills, such as budgeting, saving, and investing. It also helps them make informed financial decisions and avoid common financial pitfalls, such as debt and overspending. By teaching children about financial literacy, parents can help set their children up for financial success and stability in the future

Q: Can I speak with someone about my child’s financial success?

A: Yes, you can reach out to Sykes Federal Credit Union for personalized financial insight and planning for yourself, children, or entire family. We will happy to help.