Your Guide to Teaching Financial Literacy to Kids

April 10, 2024 byElizabeth Preston

4 min to read

With more than 33.5 million Americans now spending more than they make and over 61% living paycheck to paycheck, financial literacy is more critical than ever for kids to learn.

By teaching kids about money when they’re young, you’re laying the foundation for their future financial understanding. Children who grow up in households that emphasize the importance of financial literacy early and encourage them to save and spend thoughtfully, are more likely to cultivate healthy attitudes about money. Teaching your kids about money won’t always be easy conversations to have, but you don’t have to do it alone. We’re here to help.

What is Financial Literacy for Kids?

Financial literacy refers to basic financial concepts and skills. Some of these include knowing what money is, understanding the value of money, learning how to use debt and credit responsibly, opening a bank account, creating and sticking to a budget, saving money, identifying needs versus wants, and cost comparing items and services.

These are essential skills for adults, but they can be overwhelming for young children who are just learning about money for the first time. For children in kindergarten to 5th grade, financial literacy begins with the basics.

Young student in a yellow shirt is looking at their father holding a pink piggy bank

Financial Literacy Concepts for Kids

If you are worried about getting started too early with money management lessons, know that children begin to develop an understanding of many basic financial concepts when they are as young as three years old. For example, by age three, most children have some understanding of value, though not always in regard to money.

You can jumpstart your child’s financial literacy journey by first explaining what “money” is and how money is used in terms they can understand and through simple examples, such as:

Earning money in exchange for something (such as doing chores)
Saving and counting money so that your child starts learning how to keep track of their money, keep it safe, and understand what they are spending it on
Planning for major moments, such buying a gift for someone’s birthday
Shopping for things they need versus the things they want

These money management and financial literacy conversations are important to have with your kids. You can weave these conversations into your everyday activities.

Financial Literacy Activities for Kids

Money management can be taught to kids in a way that is accessible—and fun —even at a young age.

Play Games with Your Kids That Involve Money

Competition and gamification are great ways to help kids retain information. So, try playing games with your children that revolve around finances, such as Life or Monopoly, to help your kids learn the importance of budgeting and saving for the future.

Give Your Kids an Allowance and the Freedom to Spend It

As soon as your kids understand the basics of money, start giving them a small weekly allowance in exchange for doing chores.

An allowance will offer your children invaluable firsthand experiences. They’ll understand that their work has value, they’ll see the rewards of saving, and they’ll experience the risks of making impulsive spending decisions.

Give Your Kids a Place to Save Money

Learning to save is an essential life skill that will build discipline and demonstrate the virtues of delaying gratification, goal setting, and saving. Even before they’re old enough for bank accounts, you can help your kids get in the habit of saving money by giving them a piggy bank or other safe place where they can deposit their allowances. They can even decorate their “banks” with pictures of what they’d like to buy with their money someday, which encourages them to set goals and work toward those goals. Also, this is a fun way of counting money for kids that makes money management feel real to them.

Show Your Kids How to Be Smart Consumers

When you take your child shopping for something that they want to buy with their own money, consider guiding your child to look at similar items and help them compare the items’ prices and qualities. There’s a fine balance between helping your kids make educated spending decisions and micromanaging your child’s spending. Model the spending behavior you would like to see, but still let them make their own decisions.

Teach Your Kids the Basics of Borrowing Money

Once your kids are old enough to understand what credit and debt are, consider allowing them to borrow small amounts of money from you against their allowances when there’s something they want to buy that they cannot wait to save up for. You could even negotiate how much they’ll need to pay you back out of their allowance each week. Remember to keep track of the remaining balance until the debt is repaid. This will teach them the realities of handling debt and the value of saving and budgeting.

Financial Literacy for Children Starts at Home

Although it may feel uncomfortable to talk to your kids about money, money management skills learned at an early age can have a lasting impact on the rest of your kids’ lives. Even modelling (and explaining) the financial behaviors that you want to see in your children can help get them started on their financial literacy journey.

Also, remember that you're not alone. We are here to help. If you’re interested in getting more involved in your children’s education, then visit Connections Academy^® to learn more about tuition-free virtual school.