Financial literacy may seem like a complex curriculum for a five-year-old. Despite the complexities of modern finances, it’s never too early to start teaching children about the importance of money management. Responsible spending and saving habits can — and should — be instilled in children at a young age. After all, finances are going to be an important part of their life into adulthood.
4 financial fundamentals for youngsters
The Consumer Financial Protection Bureau suggests teaching and practicing financial fundamentals during early childhood focused on earning, saving, planning and shopping.
You earn money by working. Help your child understand that money doesn’t grow on trees; that you earn money by working. Describe your job to your child and take them for a walk around your community to point out other adults working at their jobs like policeman, store owners and teachers. Encourage them to imagine how they would run their own business by setting up a cookie or lemonade stand.
You need money to buy things. While the old adage, “money can’t buy happiness” holds true, explain to your child that there are certain things in life that do require money. Talk about the difference between activities that are free, like playing with friends, versus items that cost money like buying ice cream, toys, and gas for the car.
Some things are worth waiting for. Next time they’re standing in line for a turn on the swings, point out the importance of waiting for the things we want. Explain that sometimes buying expensive items means we have to wait and save up our money to be able to afford them. Label a jar or piggy bank for savings and suggest that your child put some of their allowance or birthday money aside to buy a toy or treat when they have enough.
Spending money always means making a choice. Explain that every purchase requires you — and your child – to make a choice. Describe how you and your family decide which items to purchase. These decisions are important because oftentimes making one purchase means you won’t have enough money for another.
Incorporate games and activities like shopping and sorting money to practice these financial fundamentals in a fun and engaging way. Take them for a trip to your local bank branch to talk to a teller and even open up their very own savings account.
As they get older, children will be exposed to a variety of financial possibilities and potential pitfalls like overspending and credit card debt. Instilling the value of earning, saving, budgeting and making purchasing decisions will help ensure you’re setting your child up for their best financial future.
