How To Teach Your Kids About Money (By Age)

AGES 3 - 6

Ages 3 - 5

At this age, it’s important to begin teaching your child about the concept of waiting to buy something they really want.  This is a hard lesson for people of all ages, but the sooner you can get started on this, the better.  According to Forbes.com, children as young as 3 years old can comprehend simple concepts surrounding money, so if you’re worried about making your child grow up too quickly, don’t.  It will help them.

There are simple ways to teach your child the importance of waiting for something they want.  For instance, when your child is waiting in line to play on schoolyard equipment, you can say, “You’re doing a good job waiting for what you want — I’m glad you’re learning this so quickly!”.  

Something else you can do is create three jars labeled “SAVING”, “SPENDING” and “SHARING”.  Every time your child receives money from doing chores or from a special occasion, help them divide their money equally among the jars.  Teach them to use money from the “SPENDING” jar for small purchases, like stickers or candies.  The “SHARING” jar should only be drawn from for someone else who needs it, or for charity, and the “SAVING” jar should only be drawn from for more expensive items.  

With your child’s new “SAVING” jar, it’s good to help them create a goal.  Have your child pick out a toy they want to buy.  Make sure they pick a toy that won’t take too much time to save up for so they don’t become frustrated as they wait.  Once they have a goal in mind, explain how long it will take for them to save up for it.  

Also, counting is FUN for kids!  Whenever your child has more money to add to their “SAVING” jar, empty the jar and help them count it so they can visually see their progress.  Discuss how much they have, how much they need, and how long it will take them to meet their goal.  

By doing all of this, they will come to see the importance of being patient while saving and it will become a valuable life skill.  Have them continue with this method until they are older and your child will be equipped to handle their money effectively.

AGES 7 - 10

Ages 6 - 10

At this age, it is important to begin teaching your child about choices; specifically, what they choose to spend their money on.  Explain to them that money is finite and once they’ve spent it, they won’t have any left so they have to be mindful about what they buy.  This is also an appropriate age to begin including your child in more adult financial decision-making.

The grocery store can be extremely useful for this.

An easy way to begin teaching your child about choices is to talk out loud in front of them when you are making your grocery list.  For example, “I know we have a lot of toilet paper so we don’t need any more right now, but we are out of oranges so I should put that on the list.”  This teaches them to keep supplies replenished without excess.  Also, if you need a staple household item (like paper towels), you can tell them about buying in bulk to get a cheaper per-item price.

Once your list is made, take them to the grocery store.  As you are browsing your options, be sure to continue thinking out loud in front of them.  For example, “I think I’ll buy these oranges instead of those ones because these are 50 cents cheaper!”  This teaches your child how to get what they need for less.

While you’re at the grocery store, you can also hand your child $2 and have them pick out a piece of fruit based on your grocery list.  This is a simple way to give them a choice to make with money.

Finally, while shopping, verbally ask yourself questions like, “Is this something we really need or can it wait until next week?” or, “Could I borrow this from someone else?” or, “Would it cost less somewhere else?” to teach your child about options.

In so doing any of these things, you will effectively teach your child about the importance of making good choices and how to make them.

AGES 11 - 13

Ages 11 to 13 top picture

At this age, it’s a good time to shift your child’s goal-based thinking from short-term to long-term.  Your child should be able to grasp the idea that the earlier you begin saving, the faster your money can grow from compound interest.  

An effective way to teach your child about compound interest is to use and compare real dollar amounts, spans of time and interest rates.  Sit down with your child with a piece of paper and a pen and draw a graph like this one:

Ages 11 to 13 Graph

Tell them, “If you set aside $100 every year starting at age 14 and your interest rate is 5%, you’d have around $23,000 by age 65, but if you start at age 35, you’ll only have approximately $7,000 by age 65.”  It’s important to use real numbers because children generally do not fully grasp the idea if you just tell them, “Your money can make you more money if you save it.”

As a followup, get your child to do some compound interest calculations here so they can see for themselves how the numbers grow depending on what the interest rate is.  There is also a very inspiring story about someone who notably used compound interest to his advantage and was able to retire at age 30.  Read about it here.

Finally, have your child pick a more expensive purchase than what they’re used to (like an iPod) and show them approximately how long it will take them to save up for it.  Say for example your child earns $30 a month by doing chores around the house and yard.  In this case, you can show them how long it will take them to buy that item if they save $5, $10 or $20 each month.  At $20 a month, explain to them that they won’t have enough money for other purchases unless they temporarily give up a regular expense or do something to create more income (like selling toys, games or clothing) in order to reach their goal sooner.    

Kids want to spend their money on impulse items on top of habitual spending (like buying a snack at recess instead of packing one).  Taking them through this whole process will teach them about trade-offs, saving money and how to take advantage of compound interest.

AGES 14 - 18

Ages 14 to 18

At this age, it’s time to begin comparing colleges; specifically, the differences in cost and the financial aid options available to post-secondary students.  It’s also a good time to discuss what school could look like for your child depending on their lifestyle.

Start by comparing college costs.  Any college will typically have something called a “net price calculator” on their website, which tells you the approximate overall cost for a student to go there.  Your child may become discouraged looking at this number, but you can explain the difference in salary between those who graduate from college or university versus those who don’t.  This will show your child that post-secondary school, although a very large initial investment, can have a much greater return.

Following this conversation, talk to your child about how much you can realistically contribute to their education fund each year.  This is also a good time to discuss financial options with them, like applying for scholarships, bursaries and grants, or taking out a student loan and exploring government programs that can help them pay it back.  Being open, honest and informative with your child about these things will help them decide which schools would be appropriate to apply for based on cost.  

Don’t stop there.  You should also discuss employment prospects and how potential loan debt will affect their lifestyle once they graduate.  As with any investment, it’s good to decide together if investing in a particular school is going to be worth the return or not.

Finally, when it’s time for your child to go to post-secondary school, have them get a part-time job that requires no more than 20 hours a week.  If they can get an on-campus job, that’s even better.  Students tend to excel in school when they work on campus because they are more engaged in student life.  However, make sure they don’t need to work more than 20 hours a week or you can expect their academic performance to suffer.

 AGES 18+

At this age, it’s time to start talking to your child about what to look for in a credit card and how to use it responsibly.  To start, it’s helpful to research which credit cards have the lowest interest rate and no annual fees before signing up.  It’s also important they learn to limit credit card use to an amount they can pay off at the end of each month.  

By discussing these items with your child, you will save them from accumulating credit card debt on top of possible student loan debt, which can make it nearly impossible for them to buy larger items (like a car or a house) due to bad credit later on.  To add, prospective employers may also check their credit history to help decide whether or not to hire them, so having a good credit score is crucial.  

So how do you start?

Most people have a savings account by the time they’re 18.  Make sure your child deposits any money they make into their account from the start — this will help simplify budgetingsaving money and understanding the maximum amount they should be spending via credit each month.

To help them understand their credit card expense limit, take them through this step-by-step process:

1.  Using their bank statements, calculate how much money they made over the past year.

2.  Calculate total yearly expenses for things like rent, car insurance and groceries.  You can also use their bank statements for this.

3.  Divide the yearly totals from #1 and #2 by twelve to get their monthly "income vs. expense" averages.

4.  Have them use this online form to create a monthly expense sheet with the totals from #2.

5.  Split their total income into three sections and see what they have for annual spending, saving and sharing money as explained in the Ages 3 - 5 section.  This will keep them aware of any time they need to dip into their savings money and they can make an informed choice.

6.  Compare their spending money total against these expenses.  Will it cover everything?  If not, they can dip into their "sharing" money and, if needed, their "saving" money.

By now, your child should have a clear idea of where their money is coming from, what it’s paying for and what they have leftover.  This will determine the maximum monthly amount they are allowed to charge to their credit card.  If all expenses are being covered by their spending and sharing money, they should consider holding off on getting a credit card so their savings can continue to grow.

Finally, a parent typically needs to cosign for a child to get a credit card.  Explain to them the importance of paying off their credit card because, in this case, it will affect your credit history as well.