How to Teach Kids about Money and Budgeting

Teaching children about money is an ongoing process rather than a single lesson. We’re here to help you start age-appropriate conversations about money and budgeting with your kids that you can expand on as they grow older.

When to Start Teaching Financial Literacy to Kids

"It's never too early to start teaching your kids about money," said Roshonda Smith, Regional Community Development Manager at Huntington Bank^†. "Even young children can begin to understand that items and actions cost money, such as teaching your kids to turn off the lights when they leave a room because it costs money to use electricity."

For example, you can introduce concepts like cash, coins, and costs to children as early as five or six years old and start building on their knowledge as they learn more over time. "When we teach financial literacy to kids in our local communities, we typically group children by grade level (Kindergarten to second grade, third to fifth grade, sixth to eighth grade, and ninth to twelfth grade) as a handy way to manage the complexity of different financial topics you should discuss with your kids," said Smith.

5 Ways to Teach Kids the Value of Money and Budgeting

To start teaching your kids about money, we've broken down five ways you can start discussions and lessons about money in a child-friendly context.

• Introduce concepts of money and banking, then discuss them in daily life.
• Teach kids to earn, spend, save, and give money with an allowance.
• Teach kids to budget and keep track of their money.
• Teach money skills in a fun way.
• Encourage kids to keep good financial habits as they grow up.

1. Introduce concepts of money and banking, then discuss them in daily life

When your children are young, it's important to start teaching them about the existence of money—both physical and digital currency—and where it's kept in locations, like wallets and banks. This is how children learn to recognize financial transactions, like understanding that a credit card swiped at a restaurant means an exchange of money has occurred for the meal they ate.

Introducing financial concepts and vocabulary words into your kids' daily lives is a simple but effective way to help them start thinking about money and how it relates to the outside world. Simply pointing out bank buildings and explaining their function while driving around town can make monetary concepts more understandable to children.

The grocery store is another excellent way to teach your kids about money, because you can easily expose your kids to concepts like prices, budgets, and exchanging money for necessary items, like fresh produce and their favorite snacks. You can even start planning grocery trips with your kids ahead of time to show them how to make a budget, stick to a list, and shop strategically to save money. Taking a practical approach to teaching kids about money can go a long way in helping them learn new concepts, retain lessons, and apply their knowledge as they get older.

While young children need to be able to count and recognize coins and bills, keep in mind that modern kids may not be exposed to physical currency as often as digital alternatives. For example, they may seek your permission to buy in-app tokens for their favorite video game. This can be a prime opportunity to teach your children about the value of money and how it's earned.

2. Teach kids to earn, spend, save, and give money with an allowance

If your kids are asking for a new toy, a candy bar, or in-app video game purchase, it's a perfect time to show them that they need to earn money before they can buy a special treat. Offering your children an allowance can help you teach them the following concepts about money.

• Earning. Whether your kids do weekly chores or help with odd jobs, it's vital that your children learn they must earn money though work. Once they start earning money, you can start introducing more complex topics, like jobs, paychecks, salaries, and direct deposits. And while children may want to stuff a cash allowance into their pocket and go about their day, it's important for them to learn how to keep their earnings safe in a wallet, at home, or at the bank.
• Giving. The importance of giving can be easy to overlook, especially when kids are just learning how to manage their money. Instead of spending their allowance, encourage kids to periodically give money to a charity that's important to them. Charitable donations can help kids learn the importance of generosity and spending money for reasons other than personal gain.
• Spending and Saving. Now that your children are earning an allowance, it's time to break out the piggy bank to help teach them the importance of savings and spending responsibly. While they may want to spend their whole allowance at once on games, treats, and other entertainment, it's key for kids to learn early that saving money in the present can come in handy on a future rainy day.
  
  A $50 birthday gift could pay for a video game right now but saving at least half of it could help fund a trip to the amusement park next summer. Twenty bucks earned shoveling snow could pay for a trip to the movies today, or it could contribute to a fund to buy a smartphone upgrade.
  
  Offer kids these kinds of scenarios as both hypotheticals in discussion and as real-life choices for them to make with their allowance. It can help them learn the value of money, the benefits of goal-setting and saving over time, and the importance of responsible spending. You can even open a savings account for your child to give them hands-on experience with managing their money.

Once your kids have a better understanding of these financial principles, you can move on to more advanced concepts like budgeting, banking, and tracking money.

3. Teach kids to budget and keep track of their money

Once your kids start earning a steady allowance, you can start helping them create a budget to meet their future goals. Have your kids keep a record of the money they earn, the money they spend, and the money they save each month. Seeing the amounts written down on paper or in a spreadsheet can help them understand how they spend their money, where they spend it, and how to save it.

Once you have a few months tracked, you can help your children make a budget based on their earnings, the cost of necessities like field trip dues, and the cost of their long-term goals like buying a new bike or a trip to the water park.

4. Teach money skills in a fun way

As often as you can, find ways to make discussions and interactions with money a fun, engaging experience for you and your kids. Whether it's creating a game out of putting money in a piggy bank, inventing silly songs to remember about how to count coins, or using candy to visualize financial concepts, you have endless opportunities to make learning about money a fun activity. As an example, we're going to discuss how you could turn adopting a new pet into an entertaining financial literacy lesson for your children.

If your kids have been asking for a family pet, it's the perfect opportunity to teach them about budgeting and saving money for a goal. First, discuss as a family where you want to purchase a pet from and what kind of breed you'd like to own. This can be important because there can be different levels of maintenance for each kind of pet.

Next, talk with your children about the supplies and expenses required before buying a pet and bringing it home. Ask them to list what they think the pet will need and help them find the costs for each item at a local pet store. Discuss which pet expenses will be ongoing and which will be more sporadic. You likely won't need to buy a cage more than once, but you will have to adjust your budget to buy food for your pet on a regular basis.

Once you've worked out the cost of the initial purchase of the pet and their supplies, it's time to consider future expenses. Will you need a pet sitter on the holidays? What if your pet needs training? How will you pay for regular vaccinations and checkups at the vet? Will you take out a pet insurance plan to cover emergencies? After you work out what these costs may entail, organize a pet fund with your children that everyone in the household can contribute to over time to help cover these expenses.

Getting a pet is a valuable way to teach your children the responsibility of caring for a living creature while also offering them a lesson in budgeting, saving money, and planning for the future.

5. Encourage kids to keep good financial habits as they grow up

Teaching your kids that earning and saving money can be fun and rewarding can help them develop good money habits as they grow older. Offer your encouragement, answer questions to the best of your ability, seek professional answers when necessary, and keep it cool when setbacks happen.

From saving up for their education to helping open their first account, Huntington will be here to help along the way.