5 Fun Ways to Help Younger Children Learn Financial Skills

Over the weekend, my wife and I made our weekly trip to the grocery store to buy food for the week. This excursion always ends with us at Target. Our 5-year old typically looks forward to this chore. We’ve gotten into the bad habit of bribing him with a new pack of Pokémon cards as long as he is well behaved and is helpful. He loves to help push the card down the aisles, pick out produce, and load the cart.

This trip he was even more excited. With Christmas just ending, he had a fresh 20 dollar bill that had arrived in one of the dozen holiday cards we had received from friends and family. He had tucked into his pocket with the anticipation that he would buy an extra large pack of his favorite cards. For me, it’s painful to watch this. I know he’s basically pissing away his money on pieces of paper (sure, they can be collectors items but aren’t worth much after they’ve been bent and creased by a 5 year old). But, the money is burning a hole through his pocket. There is no talking him out of it.

In these moments, I have to remind myself that I was a kid once and blew money on my share of stupid shit. Instead of Pokémon cards, I would squirrel away coins until I had exactly $7 so I could buy a new GI Joe action figure at our local Hills Department Store (I just aged myself). Even when I was older (14 years old), my first paycheck went entirely to a brand new Nintendo GameCube console. As parents, it’s on us to help teach our kids how to use money responsibly.

The biggest challenge is that young children are too young to understand complex financial topics. It’s never to early to get them thinking about money the right way. Here are some fun and easy ways to start incorporating financial literacy into your child’s world.

1. Sorting and Counting Money

My son is obsessed with coins. He loves to get our our fireproof safe box where we typically throw coins and leftover currency from our numerous trips abroad. In the box, you’ll find Euros, Baht (Thailand), Pounds (UK), Kroner (Denmark), Dollars (from the US, Singapore, and New Zealand), and a variety of other currencies. He loves spotting how each currency has different shapes, colors, weights, and sizes. Some have funny letters that he doesn’t recognize. Some have images of kings or queens. Others have pictures of mythical creatures like dragons.

When he asks to get out the “money box”, I say yes every time. It’s the perfect teaching opportunity. There are two lessons here. First, it’s a great opportunity to help them understand that different places use different forms of money (which can be quite a difficult concept to grasp today, especially when they see mom and dad use the same “money card” when buying things abroad).

The second lesson, especially when sorting through US dollars is to help him understand how to identify each denomination of coin and how to get them to total to one dollar. You can take this a step further and help them understand that five individual dollars is the same as a five dollar bill.

2. Understand Prices When Shopping

I’m one of those weirdos that prefers to go into a store than deal with a drive-up pickups. It just feels like an extra step (even though I know its faster and more convenient). I take advantage of this when my kids are with me to teach them about financial concepts while we shop. Learning to read price signs is a basic skill that most adults take for granted. Both of my kids are obsessed with numbers and math so I make a game out of asking my 5 year old how much something costs as I pull it off the shelf. He can quickly spot the price tag and tell me the amount.

This can get confusing, especially when the price isn’t a whole dollar amount. At first, he couldn’t grasp the concept that $3.99 is actually $4 and not $3 (this is where teaching fractional dollar values helps). It took some time, but he finally got the hang of seeing $2.85 as “two dollars and eight-five cents”.

This is a good opportunity to show how to look at different products and compare the prices. When I’m in the aisle looking for pasta sauce, I ask him to find the cheapest and most expensive spaghetti sauce. We have a favorite that we like to buy that’s made from high quality, whole food ingredients. It’s important to also explain why sometimes it might be a good idea to buy something that costs a little more but has a higher volume or quality. If you have older kids, challenge them to find the cheapest option per ounce or quantity and explain why.

3. Teaching Taxes

Reading price signs can be tricky for kids that grew up in the United States (or another place where tax isn’t included in the sale price). My 5 year old is still learning that just because you find a toy that costs $19.99 doesn’t mean a $20 bill will cover it. First you have to explain that there is an extra charge that the store collects for the government.

The way that I explain it is by listing out all the things that our taxes pay for such as his school teacher’s salary. I explain that we pay the extra so that his teacher can shop at Target too! It’s not a perfect answer, but it’s simplified enough for a child to understand. You might also show them the receipt when you leave the store can help explain this a little more.

4. Compound Interest and Investing

Kids are impulsive. When they want something, they usually want it right now. They don’t have the concept of delayed gratification. Our older son, Aiden was 14 years old and loved to play video games. He really wanted to buy a special version of Minecraft for $60 to play with his friends. “What’s wrong with the version you have already?” “You don’t understand”, he would tell me and insisted this one was different.

I tried to explain to him that once that money was spent he would never get it back. To make matters worse, I knew that he would eventually get bored with it and never play it again. It was painful to think of the hundreds of dollars I had spent myself on video games growing up. I tried to explain that he could invest the money instead and how it would grow. He still insisted on buying.

So, I told him that if he could complete a financial education course, I would let him decide and would accept his new informed decision. I paid for the course and he took it in two days (he was really motivated to buy the game). I was impressed with how quickly he absorbed the information.

I was surprised when he still decided to still buy the game. But I told him that I would accept his decision and that’s what I did. What happened next was predictable, after a few months he decided he didn’t like the game any more and never played it again. This was disappointing, but he learned a valuable lesson firsthand. When he wants to buy something now, I simply ask him to reflect on his Minecraft purchase. Now, 75% of the time, he reconsiders and invests the money on his own. Even better, he has been investing for a couple of years, so he can see actual growth happen which is tangible fruits of his labor.

This is way too complex for younger kids. A good way to simplify this concept is to teach them to wait in exchange for short term gains. For example, if they really want to buy a new toy with their birthday money, give them a special piggy bank for “investing”. Tell them if they put in their money and wait a week, more will magically appear. Then, when they fall asleep on the 7th night, secretly put some money in. They will be so surprised the next morning when they see their $20 is now $25. Trust me. They’ll want to keep saving.

5. Setting Financial Goals

Another useful skill is being able to set smart financial goals. If your child wants to make a large purchase such as a new bike or $200 LEGO set, they may need to set aside money for a longer period of time. A good way is to teach this is to create a fun chart to track their progress toward their goal. Feel free to make this a awesome art project by breaking out the art supplies and a poster board. To increase excitement for the challenge, you might also consider matching their contributions toward their goal. Or, you could create a weekly chore list that must be completed to earn their match.

6. Earning Income

It’s never too young to show kids the connection between work and income. Growing up, my mom would keep a list of chores posted to the refrigerator with tasks around the house. If me or my brothers completed the chore, we would get paid. Fifty cents for washing the windows on the house, three dollars for raking the yard (which was almost two acres!), or a quarter for vacuuming the house. It wasn’t much but for kids it added up. Keep in mind this was the 90s, so you know, inflation and such.

A lot of people have conflicting views on this. Many people say that this sets a bad precedence and household chores are a family responsibility. I completely disagree. You don’t go to your job for free, right? I know chores and a proper job aren’t the same thing, but kids are too young to enter the workforce so it’s the next best thing. The valuable lesson here is that their time and expertise is valuable. Kids who can learn their worth will be better prepared to get what they deserve out of their future employer and not just settle for whatever they are given.

A word of caution, while exchanging money for time is how most people get income, don’t forget to also teach them about investing and compound interest. Having your money work for you is way more important than getting that hourly rate from your employer. Missing this critical information could set them up for the typical paycheck-to-paycheck cycle that many people suffer from. Let’s start teaching them to think about wealth building and financial independence early!

I hope this list gives you some ideas on how to start building a solid foundation of financial knowledge when your kids are young. Each of these is designed to touch on a specific area and can be built upon as your kids get older. Building these skills will make a huge impact on their life. However, don’t get frustrated if they don’t quite understand or embrace what you are teaching them, especially if they are young. Just keep reiterating the lessons and they will eventually sink in.

Also, don’t be so strict that your kids hate the discussions. Let the kids be kids. Make it fun and they will enjoy discussing money. Make it painful and you might get the opposite result and that’s not what you want.