It’s never too early to start teaching your kids about money.
In fact, you can begin as young as 5 years old.
While you don’t necessarily have to talk about math, you should have conversations and explain some of the basics.
“It’s much easier to create a habit when you are younger and maintain a habit, good or bad,” said Tom Henske, a certified financial planner with New York-based Lenox Advisors.
Not only that, understanding money concepts is the foundation of financial literacy— which is sorely lacking in the U.S. Only 34% of American adults were able to get at least four questions right on a basic five-question financial literacy quiz, according to the Finra Investor Education Foundation.
“The problem stems early from parents not devoting enough time to everyday interactions with their kids,” said Arne Boudewyn, who leads the Institute for Family Culture at Abbot Downing.
“Without the parental input early and often and consistent, you see young adults come into the world who really don’t know how to handle or manage their financial lives.”
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In the first of our age-based, four-part series on teaching kids about money, here are lessons you can use with kids ages 5 to 9.
1. Have conversations
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With young kids, start having regular conversations around the dinner table about things like savings accounts and budgeting.
“Just pick a word. You can talk about different types of money, the difference between checks and credit cards and cash,” said Henske, who developed and runs his firm’s smart-money kids program.
“You are not trying to get them to really remember the concept as much as just be comfortable talking about it.”
Of course, there’s a difference between a 5-year-old and a 9 -ear-old, so keep your conversations age appropriate.
For example, with younger kids talk about coins and simple concepts; with older ones you can delve into the rewards of earning an allowance.
Part of that conversation can also take place at a bank. While banking is becoming more mobile, it is still a good idea to take your child to your local branch so they can understand what it is and what it does, Henske said.
“It’s not very practical, because they are not going to use a physical bank the way you and I use the bank,” he said.
However, “it lays some history down.”
2. Engage together in payment transactions
How often is your child with you while you are checking out at the grocery store? Whether it is rarely or regularly, it’s a good teaching opportunity.
“That is a great moment to engage the child in how much grocery items cost and really get them to dialogue with you about it,” Boudewyn said.
If you have coupons or a reward system with the retailer, show them the before-and-after prices.
Kids learn very quickly that they can tie effort and input to financial rewards.
head of Abbot Downing’s Institute for Family Culture
You can also engage your kid in the payment transaction — let them press buttons on the credit card machine or your smartphone’s wallet, or even have them hand over the cash.
3. Give an allowance
By the time your child is 6 or 7 years old, you can start giving them an allowance. It doesn’t have to be much and can be tied into chores around the house, such as household errands or cleaning his or her room.
“Kids learn very quickly that they can tie effort and input to financial rewards,” Boudewyn said.
That will help them become a “much more prepared adult when they are 20, 21, 22,” he added.
Henske advised using physical money to pay your child at this age, as opposed to using prepaid cards that are targeted toward kids, like Greenlight, Current and gohenry.
“It’s important for them to take money and put it somewhere and see it,” Henske explained.
It also is a good time to teach them to divide their allowance into spending, saving and philanthropy.
4. Make them use their own money
Inti St Clair
When kids have something that is a want rather than a need, you should use it as an opportunity for them to use their own money.
Henske said he did this with his daughter, who felt like “a million bucks” when she went up to the cash register and paid for the item herself.
“Everything that has empowered you in life, it involves you being hands-on and doing and not reading,” he said.
“And by the way, making mistakes is OK, too.”
Another way to address it is to have your child help put money toward a large purchase he or she wants, Boudewyn said.
For example, one person he knows has a son who wanted an expensive baseball bat. The parents offered to buy the regular one, or they could give him that money instead and he could pay the difference for the higher-end product. In the end the boy learned a “wonderful lesson” and went about finding all sorts of ways to earn the money for his special bat, Boudewyn said.