Six Fun Ways to Teach Financial Literacy to Kids

Exposing kids to financial concepts early can give them the opportunity to practice, learn, and make mistakes when there are no real consequences. without any long-term consequences like harm to their credit. Early financial literacy learning can help establish a strong foundation from which to make real-world decisions. 

It’s relatively easy to incorporate activities into your everyday life and modify them for your child’s age and stage. Below are six fun ways to get started teaching financial literacy to kids.

Table of Contents

1. Use an allowance to teach kids about budgeting
2. Create a family bank
3. Introduce borrowing concepts through family lending
4. Start early with real financial products
5. Show your kids how you budget the family income
6. Explain the importance of an emergency fund

1. Use an allowance to teach kids about budgeting

Scenario:

Your child earns a small amount of money for doing chores around the house. The complexity of the chores and their payment increase as your child grows. Eventually, your teen might look for a part-time job to boost their cash flow.

Personal financial literacy principle:

Creating a budget might sound boring to kids until they learn how it could help them save for things they really want. An allowance can be a good way to teach kids about money, responsibility, and accountability. 

Activity examples:

• Show your chilld how to save a small amount for a cause they care about and spend the rest on a small toy.
• Introduce your teen to a more complex budgeting formula like the  50/30/20 rule or a “Spend/Save/Donate” approach. 

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.

Activity examples:

• Show your elementary school child how to track their incoming money with an app. Or use a notebook where they also record how they spend it.
• For your teen, offer interest that accrues the longer they leave the money alone, as a way to encourage saving.

3. Introduce borrowing concepts through family lending

Scenario:

Your child comes to you about a purchase they want to make, like concert tickets or a trendy pair of sneakers. They don’t have enough money saved and the purchase isn't in the family budget.

Personal financial literacy principle:

Borrowing money lets them fulfill an immediate need or want. It also teaches them that doing so comes with responsibilities.

Activity examples:

• For kids in the 10- to 14-year-old age range, set up payment terms and a schedule you can both stick to, with a consequence for a missed payment. Determine a realistic payment schedule so you are setting them up for success.
• With teens, you can also include a small amount of interest so they see that borrowing isn’t free. But first, explain how interest affects the total cost of borrowing. Then ask them if they would rather borrow the money or wait until they save up enough to make the purchase. You can even introduce credit scores: Explain what they are, and then create a mock “credit score” for them to show that reliably paying you back can earn them better terms and bigger loans.

4. Start early with real financial products

Scenario:

A family bank may work well for many situations. But you may also want to get your kids comfortable with real financial products from a young age.

Personal financial literacy principle:

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

Activity examples:

• Let toddlers and elementary school-age children see you use real cash so they can better understand what things cost.
• Give a teenager a pre-loaded debit card so they can get used to using plastic. Just be sure to discuss which expenses they are responsible for.
• Once they have shown they can act responsibly, help them open a checking account and discuss how debit cards are different from credit cards. 
• Add older teens as authorized users on your credit card account and discuss when and how it can be used.

5. Show your kids how you budget the family income

Scenario:

Most kids grasp the need to pay for shelter, food, clothing, and other tangible items. But they might not be aware of the need to pay for things like insurance, internet, and cell phone plans.

Personal financial literacy principle:

As they learn to budget for themselves with their own money, it’s important to see what their lifestyle costs and understand why you might say no to certain purchases.

Activity examples:

Show your kids how the bills fit into your family budget and how you decide what goes into your 50/30/20 buckets.

Let younger kids help you identify 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. Explain the importance of an emergency fund

Scenario:

Unexpected expenses might not be a specific line item in your budget. But you can discuss how best to handle them.

Personal financial literacy principle:

An emergency fund allows you to pay for unexpected expenses without using a credit card that couldadd unwanted interest. You can think of it as money you set aside just in case you need it.  

Activity examples:

• For a younger child, point to a real-life situation: Maybe the brakes on their bike recently broke. Explain that fixing the bike costs money, and since it was an unexpected expense, you used the emergency fund.
• 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 broken fridge or a pet that needs veterinary care.

Money isn’t a game but teaching financial literacy to kids through fun activities can make the experience memorable and engaging. The great news is that it’s never too early or too late to learn. 

If you need to brush up on your own financial literacy education, read our article on budgeting.

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The information provided herein is for informational purposes only and is not intended to be construed as professional advice. Nothing contained in this article shall give rise to, or be construed to give rise to, any obligation or liability whatsoever on the part of Discover, a division of Capital One, N.A., (Discover) or its affiliates.