Your 4-year-old may not understand the difference between a credit card and a debit card, but she is able to learn that there are times when she needs to choose between a ball or a doll when you’re shopping for a new toy. Having difficult conversations about budgeting and finances earlier may lead to better outcomes for kids who are financially smart. Try to make financial literacy a part of life — even for preschoolers — and employ the following three ideas when speaking to your kids about money.
1. Add Financial Concepts to Everyday Scenarios
If your child is between 3 and 5, you may assume that he or she is too young to learn about money. Money Prodigy explains this isn’t true! You might not want to give a small child access to a checking account, but you can certainly tell your child “no” if he or she wants a spontaneous and unnecessary gift at the grocery store, and you can begin giving a weekly allowance for completing simple chores such as refilling the bathroom’s toilet paper or folding washcloths.
You can also teach them how down payments work, such as when you take out a loan or a mortgage. One way to do this is by using play money – like Monopoly money – and pretend they’re the borrower and you’re the banker. Have a toy picked out for them to purchase, and explain the terms of the loan they’ll need to buy it, including how much is required for a down payment. Make it fun and memorable!
2. Use Budgeting Apps for Kids
If your child doesn’t have a checking and savings account already, opening these should be your first order of business. Learning how to decide what to spend money on and how to save the rest of it is of paramount importance to your child’s financial literacy — even if you’re just dealing with games and toys. The lessons learned at this stage will return later when your child is deciding on a pair of shoes, a car, or a first home.
Use a kid-friendly budgeting app to teach the basics of spending and saving money. Apps such as the ones Atlanta Parent lists can be used for kids of different age ranges. For older kids and teens, there are many apps that can teach more advanced financial principles such as investing, asset allocation, and diversification. Most of these games use pretend money to teach your child these skills and concepts. Download AdVenture Capitalist, for example, to let your child start a virtual lemonade stand and branch out into more complex investments and management scenarios as the game progresses.
3. Encourage Your Kids to Start a Small Business
If your children are interested in taking these concepts further, you can challenge them by asking them to start a small business, such as selling homemade toys or artwork online, with little to no startup capital. Through this process, they will learn to challenge themselves to find investors or consider crowdfunding to start a business or nonprofit.
Have them read about alternate funding options such as applying for a microloan or finding angel investors to help them start their business as well. Depending on the child’s age, he or she may want to learn more about business concepts or keep things simple by learning the basics of investing in a startup business.
If you didn’t grow up in a household that openly spoke about budgeting, or if you came to associate discussions about money with shame or discomfort, it may be time to re-learn your mindset and rethink your habits for the sake of your kids. Teaching your kids how to be money-literate in a financially confusing world is a gift that will benefit them for the rest of their lifetimes.