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Teaching Children How Money Works

February 29, 2024
Financial Literacy
Personal Finance
A Guide for Parents

One of the many responsibilities for parents is preparing our children for the real world, and a significant part of that preparation involves understanding money and finances. Teaching children how money works from a young age can set them up for success later in life. Here are some simple ideas for introducing financial concepts to your children in an engaging and age-appropriate way.

Start with the Basics: What is Money?

Begin by explaining what money is, the different forms it can come in (coins, bills, digital), and its purpose. Use real money as a visual aid; let them hold, count, and sort coins and bills to familiarize themselves with different values.

Coin Identification: Teach them to identify and value different coins.
Play Store: Set up a mini-marketplace at home where they can "buy" and "sell" items.

Earning and Saving

Once they understand what money is, introduce the concept of earning money through chores or tasks. This not only teaches them the value of work but also the importance of saving.

Chore Chart: Create a chore chart with associated earnings. It helps them understand work-reward dynamics.
Piggy Bank Savings: Encourage them to save their earnings in a piggy bank for something they want to buy.


Teaching kids to budget is about planning how to spend their money wisely. You can start this lesson even with young children using simple terms and examples.

Envelope System: Use envelopes to allocate money for different purposes (e.g., savings, spending, charity). It visualizes budgeting concepts.
Goal Setting: Help them set financial goals, like saving for a toy, and plan their savings accordingly.

The Concept of Credit

While credit might seem a complex topic for kids, it’s crucial in today’s digital age. Explain credit as borrowing money that needs to be returned, usually with extra (interest).

Loan for a Toy: Offer to "lend" them money for a toy they want, with a simple "interest" concept, like doing extra chores.

Smart Spending

Teach them that spending money wisely means thinking carefully about what you're buying and whether you need it.

Wants vs. Needs: Discuss the difference between wants and needs, and have them categorize items in a magazine or flyer.
Comparison Shopping: Show them how to compare prices and the value of items in stores or online.

Generosity and Giving

Understanding money also involves learning about generosity and giving to those in need.

Charitable Giving: Encourage them to allocate a portion of their savings to donate to a charity of their choice.
Volunteering: Involve them in volunteer activities that don’t involve money but time and effort, teaching them other ways to give back.

Use Resources Wisely

Many tools and resources are available to make learning about money fun and engaging, including apps, games, and books tailored to children.

Financial Literacy Apps: Utilize child-friendly apps designed to teach money management through games.
Books on Money: Read books that introduce financial concepts in story formats suitable for children, like our How Money Works series!

Be a Financial Role Model

Children learn a lot by observation. Let them see you budgeting, shopping wisely, and saving. Discuss your financial decisions with them at an appropriate level to involve them in the process.

Teaching your children about money management is a gift that will benefit them throughout their lives. By starting early and using engaging, practical activities, you can help them develop a healthy relationship with money. Remember, it's not just about giving them financial knowledge but also instilling values around money that will guide their decisions in the future.