Money is a very abstract concept for kids, and digital currency accessed by your credit or debit card is even more so. As they grow, they’ll gain experience that helps them understand how a dollar represents a certain amount of time or effort input, and a certain amount of purchasing power. In the meantime, they only have what we impart.
However, teaching financial literacy is complicated. It starts with the difference between needs and wants, which small children find hard to fathom, then moves to pieces of paper that look an awful lot alike yet vary so much in value, then to numbers in an account, and a little piece of plastic to access it all.
Here’s what parents and experts say about when (and how) they’re teaching each stage.
Needs, Wants, And Indulgences
If you’ve ever needed a cup of coffee, a chocolate donut, or a day at the beach, you’ll understand exactly why it’s so hard for kids to understand the line between desires and necessities.
When they want chocolate milk, a new Bluey plush, or a package of Oreos, they feel it’s a need. Meanwhile, since most kids have shelter, food, and clothing provided for them, those don’t even register as needs, but as omnipresent qualities.
This can start at preschool ages, and doesn’t have to begin with money.
When serving a meal, mention that bodies need the nutrients in food but still want dessert, and emphasize that treats are great, but meeting our bodies’ needs comes first. Compare a body’s need for sleep to the desire to watch one more cartoon or play a little longer.
To transfer the concept to money, take your child on routine shopping trips. Maybe we want something from the toy aisle or ice cream aisle, but today we actually need laundry detergent or ground beef.
When Should My Child Have An Allowance?
An allowance is a good way to teach kids financial literacy.
The decision to give children an allowance is a personal matter for each household and depends on several factors, including household finances. However, if you do choose to give your child an allowance, experts have some tips on how to manage it to maximize its educational benefit.
One University of Michigan study found that kids had already formed some core financial habits between the ages of five and ten. We all know a pattern is easier to establish than to break or alter, so if you’re going to introduce an allowance, this is a good time.
However, experts say that an allowance works best as an educational tool when it involves making decisions and experiencing the outcomes.
Some parents set specific rules, requiring a certain amount to go into a piggy bank or savings account, and this is a good lesson. However, Children’s Minnesota cautions against requiring your child to use their allowance for necessities.
“It’s good to have them use it for fun things, not essential purchases such as food or clothing. This lets kids make buying decisions — and mistakes — without dire consequences.”
The idea is that they actively learn that spending all their money at the candy store on Monday means not getting to spend it again on a toy on Friday, a lesson that will carry over as they take on more personal responsibilities.
How Do We Discuss Household Finances?
One thing parents learn really quickly once our kids can talk is that they love to do so, about anything and everything they know.
That means that in public restrooms, they shout, “Is that lady pooping?” and in the grocery store, they tell strangers that there’s another baby in mommy’s uterus, and if you tell them how much money you make, they’ll shout that, too.
Since most of us don’t want the details (likely inaccurate) of our financial situations blasted at the playground, it’s better to hold off giving kids all the specifics, but once they have a grasp on the idea of money and numbers, we can start talking about some aspects.
One good way to do this is to discuss budgets, rather than wages, household income, or what’s in the family’s bank account.
So, for instance, you might show your child that there is a $250 budget for grocery shopping this week, and that it must cover seven days of breakfast, supper, and snacks, plus lunches on non-school days. Then let him operate the calculator as you shop at the grocery store.
As he gets older, he can also understand the prices of other necessities, like electricity bills and rent or a mortgage, and luxuries, like video games and vacations.
What About Introducing Credit Or Debit Cards?
Giving kids their own credit or debit card is still a rather controversial subject, with parental views varying.
On average, parents surveyed by Talker Research felt that teens should have their own checking account at around ages 15-16, and a debit card at about the same time. Credit cards come a bit later, with the average parent suggesting a child should have access to one at around 17.
However, most of these parents also said they felt they were lagging in preparing their children financially, and fewer than a third (29%) feel prepared to help their kids navigate the financial aspects of digital banking. Even fewer (21%) feel prepared to teach their kids how to manage finances in the current economy.
Parents who do introduce debit or credit cards would be wise to monitor their use, at least initially. Currently, 59% of parents say they maintain a lot of oversight over their teens’ finances, and 41% say they would like to maintain more oversight than they currently do.
