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Financial Literacy for Kids: How to Teach Them to Manage Money Effectively?

by Kimi

We teach children to walk, talk, and perform various actions but often forget to educate them about financial literacy and the ability to manage their personal finances. This happens because not everyone received such knowledge from their parents, and managing money was learned intuitively.

Experts from Payday Depot say that the intuitive approach doesn’t always work, and as a result, people settle for jobs that don’t provide them with a decent standard of living, and personal finances and family budgets are spent irrationally.

So, learning to manage money is essential from childhood — it’s an important aspect of social life, and the quality of life and comfort level in the future typically depend on this skill.

When to start talking to children about money?

The earlier you start, the better. Ideally, children can begin to acquire their first knowledge about money from the age of 3. For example, when shopping, you can explain how much a particular toy costs or the price of their favorite treats. Later on, you can teach them to count expenses and plan budgets together. This will provide practical insight into how to handle different sums of money.

Teach through play

Children don’t need complex economic terms; try to explain things in simple words and present them in a game format. There are plenty of games that can show your children different scenarios of handling money.

For example, by playing Monopoly, kids can learn various money management strategies and gain a basic understanding of how they can multiply their money. Through this game, children can learn concepts like budgets, taxes, costs, assets, grants, penalties, dividends, and more.

Here are a few other interesting games that can help develop financial literacy:

  • Supermarket. An educational toy supermarket that lets children use a cash register, cash, set prices for various items, and simulate customer queues. These scenarios help kids not only learn basic math but also how to manage money because even toy money eventually runs out.
  • Real Price Comparison. Show your child products from the same category at the store and ask them to determine which one is more expensive and which one is cheaper.
  • Toy Wallet. Buy a child-friendly wallet and various play money to teach them how to store and count money, as well as simulate various life situations.

Another excellent way to familiarize children with the basic aspects of handling money is through specially designed books. There are many such books available on the market today. A great example of such literature is the book ‘A Dog Called Money’ by Bodo Schäfer.

It covers the fundamental aspects of proper financial behavior and child businesses and even provides interesting and straightforward explanations about the stock market. The book is structured in an engaging children’s story format, but the information it provides is beneficial for many adults as well.

Is it possible to incentivize kids with cash bonuses for household chores or learning?

Children, starting from the age of 6, should have pocket money, which is also a great tool to gradually teach them how to manage their personal budgets properly. These funds should not be dependent on their school performance or completion of household chores.

The purpose of pocket money is to provide a real opportunity to apply the knowledge they acquire in practice: to learn how to allocate funds for a specific period, plan their expenses, save money for expensive purchases, and so on.

When you tie the distribution of funds to specific tasks, it may seem like a good idea. However, the problem is that education in school and the performance of certain household duties are things a child should do because they are their responsibilities.

Experiments have shown that in such situations, children face withdrawal symptoms: when parents stop providing financial incentives and ask them to do their homework or tidy up their room for free, it becomes an issue.

Therefore, household chores should not be paid for because a child, together with their parents, creates a comfortable living environment, and learning is what they need for themselves and their future. By mixing financial aspects into these tasks, parents shift the focus and create difficulties that can be avoided.

So, leave these tasks uncompensated. Instead, turn pocket money into an effective tool with which your child will learn to handle every cent responsibly.

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