Financial Literacy For Kids: How to Teach Children About Money
How young is too young to teach children about money? Learn more about financial literacy for kids — from four years old all the way through college.
March 29, 2022
If you feel like you’re not all that financially savvy, don’t worry. You’re not alone. For many people, a financial education — even about the basics — is something they simply didn’t receive.
In fact, only 57% of Americans are knowledgeable about at least three of the four basic financial concepts (risk diversification, inflation, numeracy and compounding interest).
So, how do we stop the cycle? It starts with financial literacy for kids.
From setting a good example when they’re young to setting them up with good credit after college, here’s a full breakdown of financial literacy for elementary students, high schoolers and college grads.
Heck, even preschoolers have something to learn, so here’s how to teach children of all ages about money.
Age range: 4-7 years old
Four might seem a bit young to start teaching children about finances but there are a few kid-friendly financial topics that can start them off on the right foot.
Set a good example
First thing’s first: kids are like tiny little sponges. They absorb whatever you’re putting out, so if you set a good example by not adding unnecessary stress to your financial approach, they’ll start off with the mindset that personal finances aren’t so intimidating after all.
Setting a good example will look different depending on your own unique financial situation, but it’s helpful to avoid having tense conversations around financial problems, engaging in emotioning spending or digging yourself into a pile of debt, to name a few.
Maintain good financial habits
Part of setting that good example is having solid financial habits yourself.
Here are a few examples of strong money habits from financially successful folks:
Pay down current debt using a method like the debt snowball method or the debt avalanche method
Resist the urge to splurge or “keep up” with other people’s lifestyles
Find a favorite meal that’s cheap or pack a lunch
Think about investing in stocks, bonds, ETFs and private businesses
Strive for multiple streams of income (employment, real estate, investments, etc.)
Keep an emergency fund on hand
Start them saving early
One concept that’s easy for young children to grasp is saving – especially if it has a visual element. Get them a clear piggy bank and show them the value of filling it up with coins. Then, use those coins to help them purchase something they desire like a new toy or a sweet treat.
Tell them how much their toys cost
We’ve all heard the halls of Target echo with children’s relentless attempts at acquiring new toys. But this is actually a teachable moment for parents. Tell children exactly what each item costs, so they can get an early sense of spending.
Then, use those piggy bank funds to make the purchase, so they can see their savings go back down. This may help them understand that there isn’t a money tree growing in the department store parking lot and that things cost money.
Age range: Elementary and middle school
Financial literacy for elementary students encourages them to get a little bit more hands-on with their approach to personal finances. In this phase, they’re still observing the financial habits of their parents, but they can also start to make their own financial decisions.
Give an allowance for completed chores
When it comes to financial literacy for kids, an allowance is one tactic many parents turn to as a first foray into financial awareness. The act of using a little elbow grease to earn wages is an invaluable concept to grasp.
Depending on their age range, there’s plenty of household help they can offer in exchange for a weekly or monthly allowance:
Lending a hand with yard work (raking leaves, weeding, watering flower beds, etc.)
Sweeping the floor
Setting and clearing the table
Putting away groceries
Folding laundry
Helping prepare meals
Cleaning their room
Organizing play areas/ toy rooms
Bringing in the mail/ newspaper
Cleaning out the inside of the car
Let them weigh their own financial decisions
The older we get, the more we realize that every financial decision comes with a benefit and a consequence. This is another concept that can be helpful to introduce at a young age.
When you’re out shopping with your child, let them contribute to some small financial decisions.
For example, tell them if you buy this game, that they can’t get the new sweatshirt they wanted.
A lot of times in life, when it comes to making purchases, it’s one item or the other. Including elementary age kids in financial decisions will help them conceptualize how to weigh pros and cons when it comes to making purchases.
Say “no” to impulse spending
If you start teaching kids how to weigh their own financial decisions, it will hopefully be easier for them to say “no” to impulse spending. Either way, this is another concept to encourage when thinking about financial literacy for kids.
“Want to purchase that candy bar from the checkout aisle? That’s fine, but you’ll have to put back the Gummy Worms you already grabbed.”
Say “yes” to charitable giving
It’s never too early to teach kids to give back. By now, your school-aged child might have a favorite cause to contribute to. They can use their allowance and make a charitable donation to an organization or effort they’re proud to support.
A few ideas that may inspire elementary school children to get involved in giving include:
A local animal shelter
Age range: High school
Even if high schoolers act less than interested in financial literacy, understanding it will help give them a serious leg up.
Here are a few key pieces of financial curriculum for kids in their teens.
Setting up a bank account
By now, a teenager or young adult might have their own part-time job, self-made hustle or a decent amount of allowance savings set aside. This is a great time to take those funds and open up a bank account in their name.
By law, minors can't open up their own checking or savings account. They need a parent or guardian to help them set up a custodial or joint account. This account would be the property of the child, but managed by the parent or guardian until they turn 18. It’s a controlled way to give teens some financial freedom before they become adults.
How to start a budget
There are a bunch of great resources to help a teen learn how to start a budget. Here are a few you can turn to from Tally:
Saving for college
If your teen is thinking about going to college, the years leading up to high school graduation are an intuitive time to start saving up.
Whether they set some money aside in the savings account you helped them open or turn to a 529 Plan, this is one financial goal they can only benefit from learning about.
Debt, credit and interest
Grasping the basic concept of how debt and credit work is a crucial part of financial literacy. Aside from the tangible knowledge you’ve imparted on how saving and spending work, the more abstract concept of debt and credit is the next step in their financial education.
Debt is money that’s owed by one party to another. Common forms of debt are loans like mortgages, car loans, personal loans, student loans and credit card debt
Credit is borrowing money, goods or services with the understanding that you'll pay it back at a later date. The most common types of credit are revolving credit, charge cards, service credit and installment credit
It’s also important to cover the concept of interest:
An interest rate is the amount a lender charges a person for borrowing money
Simple interest is an interest charge that only applies to the initial amount that was borrowed
Compound interest is interest that accumulates on itself, sort of like a snowball. It’s trickier to predict and is commonly used in credit cards
Good debt vs. bad debt
Once they know the overall concept of what debt, credit and interest are, you can enlighten high school students on the difference between good debt and bad debt.
While there are many myths surrounding good debt and bad debt, it’s important for teens to understand that good debt involves low interest rates, manageable repayment schedules and reasonable certainty that the financial impact of taking on the debt makes it worth borrowing the money in the first place.
A few examples of good debt include:
Mortgage loans as a means to a home as an asset
Student loans as a means to an education that can better their future
Business loans as a means to an enterprise that can make them more income
Bad debt, on the other hand, is debt that’s used to purchase depreciating assets. It’s typically associated with high interest rates, potential predatory lending, rigid repayment schedules and a loss of value in the financed asset over time.
A few examples of bad debt include:
Personal loans or lines of credit (when used irresponsibly)
Student Loans
High school is typically the time to apply for student loans. Parents and guardians can educate soon-to-be college students on what student loans are and sneaky student loan mistakes they might not want to make.
Once they know how to apply for student loans, have received the funds and embarked on their college education, the time will eventually come to pay back what they borrowed. Educate them ahead of time on why It’s important to pay down the principal as fast as they reasonably can, so they don’t end up owing extra interest.
Age range: Post high school and college
When it comes to financial literacy for college students, a major part of the curriculum will be around how credit history has an impact on their financial future.
Building good credit
Establishing credit as a young adult is an important part of building good credit. And getting a credit score from one of the three main credit bureaus is an important indicator of a person’s financial health and ability to borrow more money in the future.
While it’s possible to improve a credit score that gets damaged by late or missed payments, starting off on good financial footing can set young adults up for future financial success.
To build up a reliable credit history and a credit score lenders look favorably upon, responsible debt paydown is an important part of the equation. Tally† is an app that helps qualifying Americans pay down their debt faster, so they can feel good about their financial habits. You can learn more about Tally here.
And if you’re still searching for ways to be more financially savvy, sign up for the Tally Newsletter. You can get personal finance hacks delivered straight to your inbox.
†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 to $300.