Kids Financial Education Lessons By Age
According to CNBC, children may be able to grasp basic money concepts early, even as early as preschool. You may want to save the lesson on compound interest for later, but there’s value in introducing a kindergartener to the value of money.
Let’s explore ideas for appropriate financial lessons for kids by key age groups, based on expert research from around the industry. Of course, you know your kids best and these are just some high-level ideas around speaking to them about money.
Up To Age 6: The Value Of Money
This may seem early, but preschoolers are often ready to understand the value of money. Introduce them to the value of different coins and bills – and make it fun. Teach them how to read price tags and reinterpret them into dollars and cents.
Ages 7 – 12: Budgeting Basics
At this point, your kids may be ready to understand the value of saving, and it may be a good time to give them more freedom with their money.
Why Saving Matters
Humans are impulsive – and that includes kids. With the right mix of modeling and guidance, they can learn how saving today can provide enough money to achieve a money goal tomorrow.
For adults, the money goal may be a down payment for a home. For kids, it may be a video game console. Use examples to show them the benefits of delaying instant gratification and focusing on long-term goals.
Managing Allowance Money And Gifts: Piggy Bank Vs. Bank Account
Children may have a few revenue streams – which can include lemonade stands, an allowance and occasional gifts when grandparents pay a visit. Talk to them about what they should do with their money. Allowing them to make choices about their money can build their decision-making skills and financial independence. Start a conversation about depositing their money into a piggy bank or a bank account.
This conversation can jump-start a discussion about opening a bank account. Talk about your bank accounts, how you use them and what they do. For example, you can talk about:
- Your checking account for short-term needs and quick access to funds
- Your primary savings account for longer-term purchases
- Your emergency fund for unexpected expenses
- Your brokerage accounts you use to target a variety of financial goals
The bank account conversation may lead to a conversation about interest and how it works. So, we’ll discuss interest next.
How Interest Works: The Basics
If you thought budgeting would be a dry topic for kids, try interest. But once you explain the magic of compound interest to grow a balance over time, you’ll likely get their attention.
Kids who have their eye on a larger purchase may respond well to saving when they know interest can help them achieve their goal sooner.
Ages 13 – 18: Establishing Budgeting Skills For Adulthood
At this point, your kids may be earning money by babysitting or through other part-time jobs. With money coming in regularly, now is the right time to have a more detailed conversation about budgeting skills. This can also cover saving and investing since those are often an integral part of a person’s budget.
Understanding Investment Principles
Consider introducing stocks, bonds, exchange-traded funds (ETFs), mutual funds and other investment vehicles. You can provide some hands-on lessons by purchasing shares of a stock for a teenager and tracking its performance with them. A dividend stock can also help them understand another way that investments might grow over time.
Saving For Higher Education
Many kids plan to continue their education after high school. Discuss the cost of higher education – and how every dollar they save now is one less dollar of student loans they’ll need.
You can also introduce some budgeting rules of thumb that will help them save for important purposes.
Using The 50/30/20 Rule
The 50/30/20 rule is a popular budgeting method that works for all ages. It ties together many financial literacy tactics, including dividing income into three categories: needs, wants and savings or paying off debts.
Your children probably won’t cover much of their necessities if any. But you can talk about needs versus wants. Encourage them to consider where saving for college or a car or nights out with friends fits into the three budget categories. You may want to start discussing the appropriate age for them to start paying for necessities, especially if they decide to stay at home.
Being Responsible With A Credit Card Or Debit Card
Teens with checking accounts may be ready for a debit card. Banks may introduce guidelines for younger clients that limit how much they can spend and where they can use debit cards. With adulthood on the horizon, now would be a good time to instill accountability.
Credit cards may be trickier than debit cards. If you want your teen to have access to a credit card, you may need to add them as an authorized user to your account. Banks typically don’t issue credit cards to minors. That means you get to see how they use the card, and you get to help build your child’s credit. Because you’re the primary account holder, though, you’ll be responsible for making the payments.
Some financial institutions offer credit cards for kids. And some even offer cash back on purchases.
Introducing Charitable Giving
Philanthropy is fair game as a part of your budgeting conversations. Consider helping your children identify causes that are important to them and adding a line item for giving in their budget. If your kids are older, it may be worth explaining that they might be able to claim deductions for supporting their favorite charities when they start paying taxes.
