Parents of children often grapple with how to inform their kids exactly what money is and how it relates to them. The end goals for many parents: For their children to appreciate how fortunate they are, and to encourage lifelong budgeting and saving habits.

Parents’ instincts are on target— to give their kids financial tools that will stick with them for life. Though allowance is one vehicle for promoting financial awareness, giving kids a certain amount of money every week or month may be premature, especially for young children. Similarly, different aged siblings, in different developmental stages, can grasp varying concepts about money. Continue reading for insight on how to inform kids at different ages and stages about money.

For 3 and 4 year olds

Children at age 3 are absorbent sponges. At the age of 4 or 5, however, language becomes less potent as a behavioral influence than the behavior a young child observes. Consider how to model the values you want to communicate. For example, even if you’re a generous contributor to community services, your values are invisible to your young child if you only write checks or have someone come to the house to pick up goods you give away. Show children what it means to contribute funds and financial assistance by rounding up the little ones and delivering canned goods to a shelter on a regular basis, taking boxes of outgrown clothes to a Good Will outlet or putting actual dollars and coins in donation boxes at stores.

Make sure that you demonstrate, in an active way, that sharing and tending to others’ needs is an expectation you have of your children. If a neighbor or relative is sick, take your child with you to deliver flowers or food. Don’t just make a call to have someone else deliver a care package. In other words, demonstrate what you want your children to learn— don’t expect them to absorb your verbal cues.

Other ways to communicate your expectations to young children:

  • Begin to teach money-related vocabulary by modeling behaviors that demonstrate words such as save, share, spend, bank and dollars. Once a week, select a new word and place it in a visible spot for your child to see. Though it is unlikely your 3 year old will read the word, he will begin to grasp the word’s meaning if you use it, talk about it and draw pictures portraying it. Don’t worry whether or not your child understands— know that vocabulary gets absorbed over time.
  • Read children’s books about money (see the sidebar “Suggested Books for Kids”).
  • Count currency and coins. Put pictures of coins and currency on the refrigerator or in your child’s bedroom, exposing him to what money is and looks like.
  • Talk about money in terms of using it to help others, to take care of the house and to take care of ourselves— not just as something to spend.
  • Help your child practice delayed gratification and sharing. When a significant number of toys have accumulated, let your child select one or two toys to share with a child who has none. Bring your child with you to a local shelter or organization that gives the toys to less fortunate children.
  • Let extended family members and friends know about your initiative to raise financially astute children, and ask loved ones for their help. Kids pick up information from the significant adults in their lives, and it’s easier to communicate with kids if aunts, uncles and grandparents help you model good behavior regarding money.

For 5 through 7 year olds

Age 5 represents a great time to put general concepts about money into practice. If your child is starting school, you might tie the transition to the more developed understanding of money (“now that you’re in school, you get to have an allowance”).

For all kids, ideas take time to sink in; repetition is probably more important than any one thing you can say. Reinforce the notion that money is to be learned the same way you learn to tie your shoes— through practice and instruction. And there is no better way for kids to learn than to make mistakes— the stakes are much lower at the elementary age than age 19 when your kids are making mistakes on an American Express card!

The following are ways to continue financial development with 5 through 7 year olds:

  • If your kids have not been widely infected by the consumer bug, and you want to keep it that way, remember that the retail experience is all about revving up children’s adrenaline and triggering the impulse to buy, buy, buy. When possible, physically stop for a moment before entering a large store or mall. Have the children take a deep breath, and remind them why you are shopping and what you intend to buy and spend. Keep the kids focused by giving them a list that they had a hand in creating.
  • Think about birthday parties as teaching tools. When you’re hosting the party, discuss what you’ll need to purchase with your children, mentioning costs such as birthday candles, napkins, the cake and other party supplies. Even kids who know what the cost of a CD or a special toy is may be completely clueless about funds needed for the rest of life. This largely comes from lack of context. As kids grow and experience new things, from school to birthday parties to dentist appointments, add to the index of knowing what different things cost.

For 8 year olds

By age 8, having an allowance is appropriate, as long as you lay the groundwork. Set a date for an important money talk. An upcoming birthday presents a perfect “rite of passage” conversation. Take your child to lunch or dinner. Use the event to explain that now he is becoming a big boy, and it’s time to really start learning about money. Be mindful of your child’s attention span— five or ten minutes should do. After you deliver your message to donate money and spend wisely succinctly, reiterate this message for the next ten years!

Motivate your child to learn more about sharing, saving and spending. Remind your child to practice money, like practicing soccer, swimming or whatever hobby your child pursues. Make it clear that practicing saving money is essential throughout life, like brushing your teeth and making your bed. If your child opposes you, explain, “In our family, special privileges require special responsibilities.”

After setting the stage, try some of these activities:

  • Place three jars in the family room, kitchen or other apparent spot in the house. Label one “saving,” one “spending,” and one “sharing.” Explain that an allowance helps kids learn how to do those three things well. Then collaborate with your children about what the right allowance is and support your kids in making good financial decisions.
  • Think about the big and small choices you make on a daily basis, and consider what messages you are delivering. For example, when a Dad in Silicon Valley bought a new car he chose the new Civic Hybrid, instead of the Mercedes he originally wanted to buy. His 6 year old now announces that “Dad drives the cleanest car on the planet!”
  • Capture teachable moments. Instead of buying whatever your child needs for back-to-school supplies, ask him to make a list of supplies. Then figure out a budget for what to spend. Accompany your child to the store with the list, and go through the process of making choices, doing the math and checking to see if the chosen supplies are within the budget. Describe the shopping trip as a game for practicing how to handle money. Frame the experience as a privilege— a cool thing to do— not a punishment or a chore.
  • Don’t expect immediate results. Financial awareness is a process.

Suggested Books for Kids:

  • Berenstain Bears & the Trouble with Money (Random House Books for Young Readers), by Stan Berenstain
  • Arthur’s Funny Money (HarperTrophy), by Lillian Hoban
  • Double Fudge (Puffin), by Judy Blume
  • Lunch Money (Aladdin), by Andrew Clements
  • Follow the Money! (Holiday House), by Loreen Leedy
  • The Giving Book (Watering Can), by Ellen Sabin
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