From Toddler to Teen: Age-Appropriate Money Lessons for Kids

Know what financial lessons you should teach your kids from toddler to teen.

It seems twelfth-graders across the country are clueless when it comes to money. Every two years, the Jump$tart Coalition for Personal Financial Literacy, a nonprofit organization that seeks to improve the personal financial literacy of young adults, conducts random surveys of high school seniors to assess their comprehension of simple money concepts. Overall, they flunk answers to simple questions like the following:

If you had a savings account, which of the following would be correct concerning the interest that you would earn on this account?

a) Earnings from savings account interest may not be taxed.

b) Sales tax may be charged on the interest that you earn.

c) Income tax may be charged on the interest if your income is high enough.

d) You cannot earn interest until you pass your 18th birthday.

The correct answer is "c," but only about 24 percent of students got it right in the 2004 survey.

Why the abysmal results? One reason is that most schools don't incorporate personal finance lessons into their curriculum. The other is that parents aren't teaching the information, either.

The solution? Certainly, parents should encourage schools to adopt a comprehensive personal finance curriculum like the Financial Fitness for Life program created by the National Council on Economic Education. In addition, parents should teach their children age-appropriate money lessons at home.

 

The Lesson Plan

Even toddlers should be taught some money basics. Nan Mead, director of communications for the National Endowment for Financial Education, offers parents some guidelines for teaching money concepts to children in the article Simple Steps to Raising a Money-Smart Child. Following are some teaching ideas based on the recommendations in that booklet:

Ages 2 to 4: Yes, even toddlers should be taught some money basics. They can be introduced to the concept of money as a medium of exchange and start learning to identify coins and cash.

Mead says it's also a good time to introduce the concept of saving. She recommends that you allow your child to save some money in a clear glass jar. (She advises against using an opaque piggy bank. Your child might think the money has disappeared if it can't be seen.) You may even help your child set small savings goals to teach that saving gets us what we want, Mead says. For example, your child might save for a box of crayons.

Ages 5 to 7: When children start school, it's time to begin a weekly allowance. Once they have some discretionary money, they can learn about shopping and making spending choices. They can also learn about the consequences of those choices. This is a good time for parents to teach children the difference between needs (what we have to have in order to live) and wants (what we'd like to have).

It's also a time to introduce some of the mechanics of our economy, says Mead. For example, dispel the youthful myths that plastic cards equal money and that $20 bills come out of machines just for the asking.

Consider letting your child observe or even assist you while you write checks to pay the family bills. Ages 8 to 10: This is a good time to introduce budgeting, says Mead. She recommends that parents share how they budget for the family and meet their financial obligations. Consider letting your child observe or even assist you while you write checks to pay the family bills.

It's also time to set up a savings account for your child. Around this age, children usually have the math skills to comprehend how their principal is growing and how they are earning interest. Help your child visualize these concepts by reviewing account statements together.

Ages 11 to 13: Children are able to think more abstractly at this age, and it's a good time to introduce market concepts and investment principles. Drive the concepts home with hands-on lessons, like tracking stock in companies they recognize.

Ages 14 to 18: This is your final chance to prepare your child for the real world. Allow them real-life experiences like working outside the home, managing a checking account and using a debit and/or credit card. It's also the time to teach teens about using insurance to help them manage risk.