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Six Fun and Accessible Ways to Teach Financial Literacy to Kids

Black father teaching his son to budget with the spend/save/donate model

Today’s kids probably don’t think money grows on trees. Instead, they might reasonably assume it comes from a smartphone app. Or, if they’ve ever seen cash, maybe a machine in a bank wall.

Children don’t often see financial transactions occurring with real money. Their parents load up debit accounts for lunch, pay their allowance through an app, and help them set up their first bank account online, rather than at a branch.

But personal financial literacy — that is, knowing how to use money management skills such as budgeting and investing — is key to a healthy financial future. So, teaching financial literacy and responsibility is more important than ever.

And if you think your kids know more about seldom-used math formulas than common money terms, you’d likely be right. In fact, according to advocacy organization Next Gen Personal Finance’s 2021 annual report, only 20 percent of students in U.S. public high schools were guaranteed to take a standalone personal finance course prior to graduation.

“We start talking to our kids at an early age about things like nutrition, safety, and teamwork because we want to instill good habits in our children that will last a lifetime,” notes Liz Frazier Peck, Certified Financial Planner, author of Beyond Piggy Banks and Lemonade Stands: How to Teach Young Kids About Finance and director of financial literacy for Copper, a digital bank app for teens. “Finance should be included in these early and continuous conversations we have with our children.”

Exposing kids to financial concepts gives them the opportunity to practice, learn, and make mistakes when there are no real consequences, Peck says. “Once they are 18, they will start making real-world decisions that can negatively or positively affect the rest of their lives, so they need to have a solid foundation before becoming an adult.”

Fortunately, it can be relatively easy to include financial literacy for kids in your everyday life by incorporating activities that can be modified to your child’s age and stage. Here are some ways to get started teaching financial literacy:

1. Use their allowance to teach kids about budgeting

Scenario:

Your child earns a small amount of money from doing extra chores around the house, increasing both payment and tasks with their age and capabilities. Then your teen gets a part-time job, which further boosts their cash flow.

Personal financial literacy principle:

Budgeting sounds boring until they learn about the freedom it can bring them through allocating different sums for spending and saving. “Allowance is one of the best ways to teach kids about money because having some ‘skin in the game’ teaches them responsibility and accountability,” Peck says.

Activity examples:

  • Show a youngster how to put away a small amount for a cause they care about and use the rest for buying an action figure at the store while shopping with you.
  • Introduce a teen to a more complex budgeting formula, such as the 50/30/20 approach, or a “Spend/Save/Donate” method. Peck recommends they practice by splitting up their money into these different uses every time they receive it.

2. Create a family bank

Scenario:

Your child finds that money burns a hole in their pocket or they are unable to keep track of how they spend it.

Personal financial literacy principle:

Banks (even the “bank of mom or dad,”) allow your kids to keep their money safe and out of reach through savings accounts and other products designed for longer-term savings. And, as a bonus, the money can earn interest. “When kids are younger it helps to have tangible money in a piggy bank, so they can interact with it and watch it grow or shrink,” Peck says.

Activity examples:

  • Show an elementary school child how to track their money with an app or in a notebook where they also record how they spend it.
  • Offer interest to a teen the longer they leave the money with you as a way to encourage saving.

3. Introduce more sophisticated concepts through family lending

Scenario:

Your child comes to you about a purchase they want to make, such as concert tickets or a pair of sneakers that are on sale. They don’t yet have enough money accumulated and the purchase is not in the family budget.

Personal financial literacy principle:

Borrowing money to spend right away lets them fulfill an immediate need or want but also teaches them that doing so comes with responsibilities.

Activity examples:

  • For kids in the 10 to 14 age range set up payment terms and a schedule you adhere to, with a consequence for a missed payment. “Determine a realistic payment schedule so you are setting them up for success,” Peck says. She recommends keeping it simple by either dividing the total so they pay it back in a set number of months or paying a set sum like $20 a month until it’s erased.
  • With teens, you can also include a small amount of interest so they see that borrowing isn’t free. But first Peck recommends explaining the consequences of interest and asking them if they would rather borrow money and pay more or wait until they save up enough money. You can even introduce credit scores; show them how you check yours here, and then create a mock “credit score” for them to illustrate that reliably paying you back can earn them better terms and bigger loans.

4. Start them early with real financial products

Scenario:

Your family bank works great for many situations, but you also want to get your kids comfortable with real financial products as they accumulate more money.

Personal financial literacy principle:

Financial tools like bank accounts, credit and debit cards, and savings apps can enhance your child’s financial life when used responsibly and wisely.

Activity examples:

  • Let toddlers and elementary school-aged children see you use real cash so they can better understand its limits, which might not be apparent through cards and apps.
  • Give a teenager a pre-loaded debit card so they can get used to plastic (and discuss which of their expenses they need to be responsible for).
  • Once they have shown responsibility and restraint, help them open a checking account and discuss how debit cards work (compared with credit cards). “Explain how they have a certain amount in their account, and they can only spend what they have, much like a piggy bank,” says Peck. She recommends that parents and kids review balances and transactions together on a regular basis.
  • Add older teens as authorized users on your credit card account and discuss when and how it can be used.

5. Show them how you budget the family income

Scenario:

Most kids grasp the need to pay for shelter, food, clothing, and other tangible items but might not realize the costs of other necessities that they may take for granted, such as insurance, internet, cell phone plans, streaming services, transportation expenses, and savings, to name a few.

Personal financial literacy principle:

As they learn to budget for themselves with their own allowance or earnings, it’s important to see how expensive life itself is and also understand why you might say no to certain purchases.

Activity examples:

  • Using appropriate details for different ages, show them how the bills fit into your own family budget and how you determine what goes into your 50/30/20 buckets.
  • Let younger kids help you determine how to allocate some of your “wants,” such as dining out. For example, if you have $100 designated for that category, they could choose to go out for ice cream every week or have one sushi dinner. Tweens and teens could help plan vacation spending.

6. Introduce kids to the importance of an emergency fund

Scenario:

Unexpected expenses arise frequently, and while they might not be a specific line item in your budget, you can discuss how you have set aside funds for them.

Personal financial literacy principle:

An emergency fund allows you to better handle expenses without using a credit card that could accrue unwanted interest if you don’t have a plan to pay it off at the end of the billing cycle. Peck recommends calling the emergency fund a “Just in Case” fund; in other words, money you set aside just in case you need it.

Activity examples:

  • For a younger child, point to a real-life situation, such as the brakes on their bike that recently broke and need a repair. “Explain to your child that fixing the bike costs money, and since it was an unexpected expense, you used the “Just in Case” fund,” suggests Peck.
  • With older teens, connect it to one of their surprise expenses, like a speeding ticket or a last-minute invitation for a road trip. Or you could point to one in your life, such as a fridge on the fritz or a pet that needs veterinary care.

While money is not a game, introducing financial literacy for kids through relevant activities can make teaching financial literacy memorable and engaging. The great news is that it’s never too early or too late.

And if you need to brush up on your own financial literacy education, check out some of our great reads here.