How to Teach Kids About Money: Building Financial Literacy from an Early Age

As parents, we all want our children to grow up confident and capable, especially when it comes to managing their money. Financial literacy is a crucial life skill that’s best nurtured from a young age. Here are some practical tips to help your kids understand the value of money and develop healthy financial habits.

Start With The Basics

Begin by explaining what money is and why it’s important. Use physical coins and notes to help your child understand different values. Introduce the concept of earning by giving them simple chores or tasks in exchange for a small amount of money. This helps them grasp that money is something you earn through work.

Young Children (Ages 3-5)

Play Store: Use play money and a toy cash register to simulate buying and selling. This fun game teaches them about transactions and making change.
Piggy Bank Savings: Encourage saving by giving them a piggy bank. Let them watch their savings grow and explain the importance of setting money aside.

School-Aged Children (Ages 6-12)

Allowance System: Set up a weekly allowance tied to completing chores. This teaches them responsibility and the reward of earning money.
Savings Goals: Help them set short-term savings goals, such as buying a new toy or game. This shows them the benefits of delayed gratification.

Teenagers (Ages 13-18)

Budgeting Basics: Teach them how to budget their allowance or part-time job earnings. Show them how to track income and expenses and balance their wants and needs.
Bank Accounts: Open a youth savings account and explain how interest works. Go through bank statements together to teach them about account management.

Teaching Through Real-Life Examples

Shopping Together

Take your child grocery shopping and explain how to budget and compare prices. Show them how to make a shopping list and stick to it, highlighting the importance of planning ahead.

Family Budget Meetings

Involve older children in simple family budget discussions. Explain how money is allocated for different expenses and the importance of saving for future needs. This helps demystify finances and shows them real-life applications.

Introducing The Concept Of Saving, Spending, And Giving

Saving

It's important to stress the significance of saving a portion of their income for future needs. One valuable concept to teach is "paying themselves first," which involves setting aside a portion of their earnings for savings before allotting money for spending. This approach can instil a beneficial financial habit and ensure that they prioritise their long-term financial security.

Spending

Encouraging thoughtful spending involves having open discussions about differentiating between needs and wants, and assisting with making wise purchasing decisions based on value and necessity. This mindset fosters a habit of mindful consideration before making any purchase.

Giving

Encourage the spirit of generosity and social responsibility in your children by instilling in them the importance of giving back to the community. You can achieve this by creating a designated fund for charity or actively participating in initiatives that aim to help those in need. By involving your children in such activities, they will learn the value of empathy, generosity, and making a positive impact in the lives of others.

Lead By Example

Model Good Financial Behaviour

Children learn by observing. Show them how you budget, save, and make financial decisions. Be transparent about your financial habits and the reasons behind them.

Open Discussions

Regularly talk about money and share your own experiences. Be honest about financial mistakes and lessons learned. This openness fosters trust and understanding.

The Long-Term Benefits

Building financial literacy from an early age helps children develop confidence and independence. These skills prepare them for adulthood, making them more likely to manage their finances responsibly. It’s never too late to start teaching your kids about money, and every small lesson contributes to their financial well-being.

Real-life examples of values instilled early in childhood can carry strongly into young adulthood.

Phoenix and Carl lost their dad at the very young ages of five and three.

This led their mum to fall into the trap of buying them whatever toys they wanted. The boys would play with the new toys for a short period before becoming bored – there was no appreciation. Their mum also realised this wasn’t sustainable long-term, as there wasn’t enough money coming in to support that lifestyle.

She had a conversation with Phoenix and Carl when they were still young, explaining that she could not afford to keep buying them toys. She also implemented a weekly allowance based on their ages: Phoenix received $5 and Carl received $3, with a bonus system for doing small chores such as tidying their room and making their beds. The boys were required to save this money.

At the end of each week, she would take them shopping so they could buy whatever they wanted using their weekly allowance. If something cost more than their $5 or $3, they had to wait until they had saved enough. Initially, they opted for the cheaper items for instant gratification. However, within a few months they began saving their money to buy higher-quality toys. They also learned to pool their money if it was something they would both use, and to shop around for discounts.

At the same time, she encouraged them to sort through their existing toys and clothes. They would personally deliver these items to charities that collected donations for children in need.

These lessons, learned at such a young age, have carried through their school years and into their teenage lives. Carl saved his allowance and any small monetary gifts he received to buy his first Nintendo Switch at nine years old.

Phoenix started his first part-time job at 16, just over a year ago. He transfers one-third of his salary into a savings account every week. He also pays for his own mobile phone, Spotify, and other subscriptions, and buys his own clothes.

Both of them have KiwiSaver accounts and contribute to a small investment portfolio. Phoenix’s part-time job has given him a renewed sense of financial independence and confidence. Watching his older brother become less reliant on an allowance from their mum has motivated Carl to look for part-time work once he turns 16.

Teaching your kids about money is one of the best gifts you can give them. Start these conversations early and make financial education a regular part of their upbringing. Remember, it’s about progress, not perfection, and every step you take helps set them up for a financially secure future.

Article by Radhika Beetham

This article is for general information purposes only and does not constitute financial advice. The content is based on information current at the time of writing and may be subject to change.

Lifetime Group Limited is a licensed Financial Advice Provider. For advice specific to your situation, please speak with a Financial Adviser. You can view our Disclosure Statement here.

All investments involve risk and are not guaranteed. Any examples or projections are for illustration only and should not be relied on as advice.