Financial literacy is an essential skill. Children that learn the value of money and how to handle it at a young age are more likely to be financially responsible later in life. Teaching your kids about the value of money not only helps them understand the importance of saving and budgeting, but also shows them how to make sound financial decisions. By instilling financial literacy in our kids, we are setting them up for a successful and secure future. We are setting them up for financial happiness.
Financial literacy for kids doesn’t have to be difficult. In this article, we will break it down into six major topics and give you fun ways to teach them to your kids.
1. Earning Money
Teaching your kids about the value of money should start with how it’s earned. Kids need to know that money is earned through work and that it is a limited resource. By giving them a basic understanding of how money is earned and its value, we can start to teach them the importance of budgeting and saving.
Allowances are tried-and-true ways to teach your kids the concept of money. Instead of giving children money without any effort, consider introducing a weekly or monthly allowance that is tied to completing chores or tasks. Make a list of tasks they can do around the house. These can include cleaning their room, setting the table, watering plants, or anything that works for your household. Then, assign a certain monetary value to each task. By completing the task and then getting paid for it, they will understand that money is earned through work and effort.
Now that your kids have a way to earn money and they understand that it isn’t free, they need to learn how to budget it. By creating a budget, kids can see how much money they have coming in and going out and make decisions accordingly. This teaches them the value of prioritizing needs over wants and making wise financial choices. Teaching children to budget will also help them learn to save money for the future instead of spending it all right away.
Board games are an excellent way to get your kids involved and teach them about budgeting in a fun way. Here are three popular board games that involve budgeting:
Pay Day: This classic board game provides opportunities for players to manage their money strategically. Throughout the game, players receive income, pay bills, and encounter unexpected expenses, encouraging them to make wise financial decisions.
The Game of Life Junior: This version of The Game of Life is designed for younger players aged 5 and up. While it’s more about life choices in general, it does involve managing money, making decisions about spending and saving, and dealing with unexpected events. It can introduce basic financial concepts to younger kids in a fun and age-appropriate way.
Monopoly: Monopoly teaches kids about budgeting as they manage money, make strategic decisions, and negotiate transactions during gameplay. They learn the value of budgeting, saving, and making wise investments to achieve their goals, while also experiencing the consequences of overspending and financial mismanagement. There are many versions of Monopoly, including those for kids.
3. Needs Versus Wants
Kids who know the difference between needs and wants will be better at budgeting. By distinguishing the two, children can develop a sense of responsibility and make good decisions about their spending habits. Teaching kids to differentiate between needs and wants also helps them understand the value of money and avoid unnecessary purchases.
The best way to show your kids the difference between needs and wants is by identifying each regularly. Make it a habit to identify household objects as needs or wants out loud. Another way to instill this concept is with a game. Prepare a collection of pictures or actual objects representing various items. Have your kids sort them into two categories: “Needs” and “Wants.” You can make this into a fun race to see who can sort the items correctly first.
Saving money is another vital aspect of financial literacy. Encouraging kids to save a portion of their earnings teaches them the importance of delayed gratification and the benefits of setting financial goals. Whether it’s saving up for a toy, a bike, or even a college education, the concept of saving enables children to understand the value of long-term planning and making choices for the future.
Give your kids a physical savings jar or piggy bank where they can deposit their money. Using a tangible container allows them to see their savings grow, which can be very satisfying and encouraging. Consider using transparent jars or piggy banks so they can watch the money accumulate. Label the jar with their savings goal, and whenever they receive money from allowances, gifts, or doing chores, encourage them to put a portion of it into the savings jar. Make sure that their budget has “savings” included.
Another crucial aspect of financial literacy for kids is teaching them about the power of interest. Explaining to children that when they save money, it can grow over time through interest can be eye-opening. By demonstrating how compound interest works, children understand that the earlier they start saving, the more their money can grow in the long run.
To incentivize saving, consider offering a savings match. For every dollar your child saves, you could match a percentage of it. For instance, if they save $5, you could match it with an additional $1 or $2. This not only adds to their savings but also teaches them about the benefits of saving and the power of compound interest. Make sure to set clear rules and limitations for the savings match. This way, they learn to prioritize their goals and understand that they can’t spend everything they have.
Teaching kids to donate money is a crucial lesson that instills empathy, compassion, and a sense of social responsibility from a young age. By encouraging children to donate, they learn that their actions can make a positive impact on others and the world around them. Donating money also teaches kids financial stewardship and the value of sharing resources. They understand that money can be a tool for bringing about positive change and that they can play an active role in making a difference.
A fun and interactive way to show kids the importance of donating money is by creating a “Giving Jar.” Decorate a jar or container with your child, and designate it as the Giving Jar. Allow your kids to choose a charity or cause. Then, encourage them to contribute a portion of their allowance regularly to this jar. Like savings, you can have your kids add “donations” to their budget. To make it more exciting, you can match their contributions with a small amount from your side.
Teaching children the value of money through financial literacy is an essential aspect of their education. By teaching them about earning, budgeting, saving, donating, and the difference between needs and wants, we are equipping them with the tools they need for a secure and successful future. By starting early and using practical and fun activities, we can help children develop lifelong skills that will empower them to manage their money responsibly and have financial happiness.