Teaching Your Kids Financial Literacy

Published on: November 11, 2021

It’s never too early to develop financial literacy in our children. Jex shows us how to use an allowance as a teaching tool for each age group.

By Jex Leigh Roach

Before the Information Age, students used to be taught the three Rs—reading, writing, and arithmetic—and that was sufficient. Today’s children need to know so much more than just those basics. Science, history, fine arts, and physical education all have their place in the modern curriculum. And yet, financial literacy—the ability to use knowledge and skills to manage one’s financial resources effectively—is not commonly taught in schools. As parents, it’s our job to ensure our children are prepared for the “real world,” which includes understanding money.

The suggestions below are listed by approximate age, but if your child doesn’t have much exposure to financial literacy, start with the age group below their biological age until they’ve mastered those skills. 

Ages 2-3

It’s never too early to teach your children about money. Toddlers who are learning their numbers can count coins. Children who love to match like items can match coins of the same value. You can also involve your toddler when paying for goods and services. My daughters love to hand the money to the cashier or the taxi driver. This seems simple, but it teaches an important concept.  

Ages 4-5

This is an ideal time to introduce your child to an allowance. An allowance can be a disciplinary tool that kids can earn for doing chores or a tool to teach financial literacy. Choose an amount that suits your family’s philosophy and budget. I started my oldest with one ฿10 coin per year of age per week. So my four-year-old gets ฿40 every Sunday. But the amount is less important than the money conversations and experiences that arise from it. 

My daughter has three clear jars for her money—labeled Save, Share, and Spend. Each week, she is required to put one coin in Save and one in Share, and then she can choose what to do with the rest. The Share jar can be given to a formal charity of her choice, or she may use it to buy a treat for a sibling or friend. The Save jar has a photo of the toy she’s saving for, so it feels more tangible for her. We looked at the price of that toy on several websites, teaching her to shop around for the best price. We then created a goal chart for her to color in the progress. Every coin saved means she gets to color in a section of the chart. When the chart is full, she gets to buy that toy.

When I take her shopping with me, I ask her if she wants to bring her Spend money. If she asks to buy a small treat, I tell her the item’s price and ask how much money she has. Then I ask her which number is bigger, the amount she has or the price of the treat. If she has enough, she gets to buy it. 

Ages 6-8

By age six, children can understand the difference between needs and wants. Help your child distinguish which things in our lives are wants by engaging them during your regular purchases. While grocery shopping, explain that healthy foods are a need, while snacks and candy are wants. When clothes shopping, clothes are a need, but brand-name clothes are a want. Start having your child pay for some of their wants from their allowance.

You can also teach them how to compare and contrast potential purchases. Maybe there are two similar toys they want. The toys have different features and different prices. Discuss the pros and cons of each toy, as well as the costs. If one toy is much less expensive than the other, discuss that higher quality items usually cost more but generally last longer as well. 

Ages 9-12

As your child gets older, you can increase the amount of their allowance along with their responsibilities. A twelve-year-old should get a larger allowance than a younger child, but could be required to pay for optional entertainment with it, such as online subscriptions or trendy clothes.

When you take your children shopping for groceries or clothes, show them the amount you pay for these necessities. When kids see you pay by credit card or bank transfer, it can seem like magic. Show them the line items and the receipt total to help them realize that digital payments are actually made with real money. 

Ages 13+ 

Once your child is a teenager, there are many variations based on your child’s personality, whether they’re spendy or thrifty, have a part-time job, and other factors. Just remember that your end goal is to teach your child enough so they’re prepared for the real world after high school. This can include shifting allowance from weekly to monthly, helping them create monthly budgets, and shifting more responsibility and autonomy to your child. Instead of taking them shopping for holiday gifts or school clothes, increase their regular allowance and make those part of the expenses your child pays for. It’s also good to teach the abstract concepts of digital finances, such as online bank accounts, debit cards, and eventually, the responsible use of credit cards. 

Photos from Canva.

About the Author

Jex lives in Bangkok with her husband and two daughters, who are 4 and 2 years old. She has a Master in Business Administration degree and has studied personal finance since 2011. As the owner of Jex Leigh Financial Coaching, she helps individuals and families create better financial habits so they can achieve their dreams. You can visit her Facebook page at: https://www.facebook.com/jexleighfc.

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