Money and Financial Literacy for Kids

Teaching kids about money is critical, as their early understanding of money will shape how they manage money down the road. We should start with the basics. As their understanding grows, there are other, more complicated money concepts that we should teach but we tend to shy away from instead. Fortunately, we have the answers you need to begin teaching your kids about money and having financial literacy.

Money Basics for Kids

Before we can get into financial literacy, it’s important that we start with basic money concepts and ensure that our kids understand them well. If they don’t understand how the basics work, then learning more complicated concepts will be much more harder. As kids spend more time online, they may encounter misleading information about money. While there are great tools that they can use, which we’ll discuss later, it’s beneficial to teach these basic principles yourself. By taking on this role, you’ll know exactly what they’re learning, and they’ll feel more confident coming to you with money questions. Here are some tips for introducing money management to your kids.

Remember, you’re just beginning. Anything that hasn’t been directly communicated to your kids has been learned from somewhere else. You could have no idea what your kids think about how money works. Remember that you are just beginning to teach them about money. If your kids are really young, introduce them to coins and bills and how much each coin is worth. Explain that when you go shopping, you give the cashier your money in return for your purchase. Items with a higher price cost more money. As they get older, let them join in by adding how much your bill should total as you shop or let them hand the cashier your money if you are paying with cash.

Be honest with your kids about money. As they begin to understand that what you buy costs money, you can show them how you pay your bills. While paying for things like a mortgage, electric bill, or car loan doesn’t involve handing cash to a cashier, it’s still an exchange of money. While the idea of borrowing money may seem unsettling to them, reassure your kids that it’s completely normal as 77% of Americans have some kind of debt, and borrowing is a common part of how our economy works.

Money has to be earned. Since you’re paying for all these bills, how do you even get the money to pay for them? Through hard work at your job! Kids can learn about this concept in a safe environment by earning an allowance. If you, and they, earn money that you don’t need to spend right away, put it into your Savings account at Alltru. By introducing the idea of saving money as you go, you can show how you used that saved money when you make your next big purchase like kitchen appliances or a new car.

Hands-On Money Practice

Now that your littles have a basic idea of how money works, there are several fun ways that they can learn and to practice managing money. These ideas go beyond just earning an allowance too. While earning an allowance is a great idea way to for introducing money basics, other creative ways allow them to experience some trial and error without having real world implications. Check out this list.

Save money in a clear jar. Out of sight, out of mind is how young children’s brains work. By keeping their money, or even your money, in a clear container, they can visually see how money grows. The more money in the jar, the more money they have. When you visit the credit union to deposit your savings, you can tell them that the credit union acts as a “big jar” that holds on to your money for you so that you don’t have to worry about using it, and you can always know how much money is in the “big jar” by logging into digital banking without having to count it all the time.

Play store. Kids can feel just like you buying groceries, toys, and more when you play store together. Many play cashier sets come with fake money and credit cards so your kids can learn how to use both methods of payment. Take turns being the cashier and the customer to experience both sides of spending money.

Encourage saving big. Impulsive shopping is an easy habit for us and our kids to follow, even when we know it isn’t the best use of our money. Create a savings goal for your kids to help avoid impulse buys, encourage them to wait to buy something is even better. Next time you’re shopping, and your child asks to buy something spontaneously with their own money, gently say no. Have them wait until next week when you come back and see if they still want to make the purchase. If they don’t want to make the purchase anymore, remind them that they just saved their money for something else later.

Play Monopoly. Take the stakes a little higher and have a family game night of Monopoly. The Junior version of the game uses smaller amounts so younger kids can play. The regular version of the game will introduce your kids to paying rent, investing in your property, paying off a mortgage with interest, and more.

Kid-Friendly Financial Literacy Resources

According to Investopedia, financial literacy is “the ability to understand and effectively use various financial skills, including personal financial management, budgeting, and investing.” Teaching these concepts to your kids without knowing how to communicate the ideas at a child’s level or not having a clear understanding or the topic often results in these conversations being avoided.

Here’s a list of the top 10 financial literacy terms your kids should know, as defined by Investopedia.

• Annual Percentage Rate (APR): the yearly interest generated by a sum that’s charged to borrowers or paid to investors
• Asset: a resource with economic value that an individual, a company, or a country owns or controls with the expectation that it will provide a future benefit
• Budget: an estimation of revenue and expenses that’s made for a specified future period of time.
• Capital gain: the increase in the value of a capital asset when it is sold. It occurs when you sell an asset for more than what you originally paid for it.
• Credit score: a three-digit number that rates your creditworthiness. The higher the score, the more likely you will get approved for loans and better rates.
• Diversification: a risk management strategy that creates a mix of various investments within a portfolio
• Emergency fund: money stashed away that people can use in times of financial distress. The purpose of an emergency fund is to improve financial security by creating a safety net that can be used to meet unanticipated expenses.
• Interest: a charge for borrowing money, typically expressed as a percentage of the principal amount borrowed
• Liability: something that a person or company owes, usually a sum of money
• Net worth: the value of assets an individual or corporation owns minus the liabilities they owe

While these are great definitions, knowing how to define the terms is only the starting point. Explaining these terms with real life examples can be more difficult to communicate on an appropriate level. These resources cover more topics than just the ten listed above. With a plethora of topics to choose from, your kids can learn more about the concepts they find interesting. Here are some financial literacy resources for kids to help explain these concepts.

• Sesame Workshop features the favorite characters from Sesame Street in games, videos, and other resources designed for preschoolers. These content in these resources are very basic but age-appropriate for your little ones.
• Million Bazillion is an engaging podcast designed to help kids understand money in a fun, accessible way. Through relatable stories, playful humor, and real-life examples, it breaks down financial concepts like saving, budgeting, and smart spending, helping kids build a strong foundation in financial literacy
• Khan Academy has 16 units of financial literacy lessons that are great for older kids. The units teach budgeting, debt, investment, and more. These courses dive deep into the topics and push for you to master the concept before moving on to the next unit.
• Zogo is a financial literacy app that you can get for free thanks to Alltru! Zogo features bite-sized lessons on finance with over 20 categories to choose from. As you complete lessons, you earn points that you can redeem for real rewards. This is a great way for you and your older kids to learn about financial literacy together while earning rewards to your favorite stores.

Conclusion

Teaching financial literacy to kids starts with a strong understanding of how money works. Once you establish your foundation, you can help your kids grow with hands-on practice. As they begin to grasp basic money management, introducing them to other topics such as a retirement fund, assets, liabilities, and more will help them have a big picture view of how to wisely manage and grow their own money and how the economy works. While learning about unknown topics can be uncomfortable for you and your kids as you start, we have great resources you can use to help. Plus, these hand-on resources, videos, and other tools make learning about financial literacy fun! Happy learning!