Financial Lessons for Kids – Starting them Young
Money can mean different things to different people at different stages in life. To a toddler, “money” is the clinking sound produced everytime a coin is dropped in a piggy bank. To a preschooler, it is all the toys and candy he can buy. To a teenager, it is having an iPad like the rest of his friends. To the head of a family of five, it is a means of living.
As people mature, their understanding of what money is and how it is used changes. Children are most receptive to learning, thus, parents should take the opportunity to teach their kids financial concepts at this critical period of development. The lessons they learn early will become valuable life skills analogous to reading, writing and arithmetic.
Below are some foundations of money management you can teach your children at different ages and stages lifted from Patricia A. Frishkoff’s Article “Teaching Children about Money:”
Infancy: Birth to 1 year
Obviously, money has no meaning to children of this age. But this is certainly the time when parents feel the financial crunch from expenses for childcare such as infant formula, diapers and strollers and, therefore, should begin long-range financial planning and saving for the future.
Toddlerhood: 1 to 3 years old
This is when children learn to use coins for pleasure, enjoying the sound of dropping coins and the visual effect of swirling coins in a barrel. What parents can do at this stage is to buy a see-through coin bank where you can toss in, with your children, loose change and start introducing them to the concept of money and saving.
Pre-school: 4 to 6 years old
At this stage, children begin to sense the power of money and understand the relationship between money and buying. They become aware of the concept of ownership (mine!) and may start learning how to count money but may not be able to distinguish between its various denominations.
· Money games. To enable children to tell apart a 5-peso coin from a 10-peso coin, it may be helpful to put labels and symbols on the coins such as flower (5-peso) and fish (10-peso) which may be easier for them to grasp.
· Playing store. The objective is to let them experience the fun of shopping and basic money exchange.
· Piggybank savings. The piggybank system is a time-tested tool for helping children to understand that although they may not have enough money now for a particular item, little by little, the money that they save adds up.
· Needs versus wants. It is crucial to impress to children this early that there are limits to the source of money, that people have to work to earn money and that money should be spent wisely – for needs more than for wants.
Middle childhood: 7 to 12 years old
Children this age gain vast knowledge about money and are able to work with different denominations. They understand that different things cost different amounts of money and may, in fact, appreciate paper bills more than they do coins. They are also better capable of understanding the concept of saving and its benefits.
· Learning allowance. Introduce children to the basics of budgeting and goal-setting by giving them an allowance. Encourage savings further by giving their allowance in smaller denominations, i.e. in P20s or P50s rather than in P100s.
· Learning chores. Let children experience the feeling of earning money by paying them to do chores that are non-routine or outside of their regular tasks such as polishing parents’ shoes or raking leaves in the backyard.
· Family grocery. Going to the grocery is usually a child’s first experience with spending and is a good exercise to show the importance of spending within the budget and living within one’s means.
· Matching savings. Reinforce to children the value of saving and earning interest by matching a portion of the money that they set aside, i.e. contributing P10 for every P50 they keep as savings.
· Power of small change. Teach children to value money by asking them to gather loose change and to pick up coins in the street which they may add to their savings and use later for purchases. Emphasize how small coins can go a long way when put together.
· Savings account. When the children’s savings reach a certain amount, consider opening a savings account for them so they can watch their money grow.