How to Teach Money Management to Your Kids

This post contains some affiliate links for your convenience. Click here to read my full disclosure policy.

Just like parents need to try to make cleaning fun for their children, the same can be said about money management as well. As a parent, it’s very important to teach your children how to manage money. It’s not something that’s taught in school and the media ( TV Shows, movies, and YouTube videos) don’t necessarily teach about it either. So it’s going to have to come from the parents' mouth. It’s better to start teaching finances to your little one while they’re at a young age.  This is going to set them up to have a solid understanding or money at a young age. But how can this be properly done?

First of all, it is important that you make the topic of money interesting for the kids. For example, if you have a piggy bank at home, talk about how it works and what can be done with the coins that are saved in it. Secondly, show your kids what you do with your money and make sure they understand why you are doing it. For instance, if you give up something for a week because you need to save more for the future, make sure that they understand why this is important and what will happen if they don’t save enough in their own piggy bank.

While these are a couple of great examples, how else can you ensure that your little one truly understands the value of a dollar?

Here are some tips to help your children learn about proper money management.

Tips for Teaching Your Children About the Value of Money

It’s all going to start by letting them know that money is not a toy. While yes, money can buy toys, there is work that goes into purchasing that toy. So how can you teach them to not throw around money? How can you teach them to make smart decisions with their money?

Teach by Example

Children emulate what their parents do, so it’s important to lead by example. You can show them how you wisely budget your money, how you save your money, and also how you put money back in an emergency fund for things such as legal representation. Let them know that money is very important and it’s something that you work and spend a lot of time on getting. It may take them a little while to understand but they eventually will pick up on it while you’re leading by example.

Show Them the Cost of Money

One mental trick that helps people spend less is to use physical cash when making payments. This is something to use on your little one as well. Let them know how much physical money they need to spend in order to make a purchase of something they want. If they want something, just let them see the money for itself and let them hand it to the cashier as well. This is a simple action but this is going to teach them much more than a lecture would.

Explain Opportunity Cost

Opportunity cost is simple and by the time a child is around four to five years of age, they’re going to have a better grasp of opportunity cost. This is the age where they’re going to learn and understand that their decisions can make an impact and there will be an outcome. One example would be “if you spend money on this chocolate bar then you’re not going to have money to buy this video game.” It’s little remarks like this that will help them understand.

Simply Buy Them Less

If you’re someone who loves to spoil your child, then this could be difficult. But it’s important to let them know that they shouldn’t rely on their parents or on anyone else to spend money on them for things they want. Let them work for the material items or experiences they want rather than give them the money just because they asked.

How to Teach Kids About Budgeting & Debt

Budgeting is a skill that every adult should have. It helps you save money and avoid debt. Teaching kids about budgeting and debt is a good way to prepare them for the future. But how can you teach them when they are so young? You can use a number of different techniques to teach kids about budgeting and debt. You can give them an allowance and then show them how much they have left over after paying their expenses.

You could also set up a savings account with the bank and deposit money into it each week or month until it reaches $1,000 or more. When they see the balance grow, they will start to understand how important it is to save up for big purchases. But what about debt? It’s important to talk to them about debt, what it is, how you can incur debt, and how to avoid debt. It can be hard to make this fun or interesting for them but it is something that they’re going to have to learn to understand.  But even letting them open a kids bank account can help too.