Money and Children: Teaching by Age Groups

By Paula C. Brancato, Barnum Financial Group

According to the Council for Economic Education (CEE), which promotes economic and financial education in the classroom, students who have taken a class in personal finance are more likely to engage in financially responsible behaviors such as saving, budgeting and investing.1

Parents can insulate their kids from some of the biggest money management mistakes and build their financial literacy by talking openly about the value of money and the benefits of good financial decision making.

To yield the biggest impact on kids’ money habits, however, the lessons imparted must be age-appropriate. The good news is, it’s never too early or too late to start.

Pre-School through Kindergarten – Birth to Age 5

Experts say you may start to talk with your children about money when they are as young as 3 years old. You can have fun introducing basic concepts. Pay with real coins when you shop, not plastic. Teach your kids the difference between pennies, nickels, dimes and quarters.

Explain that money is earned by working and used to buy things. Introduce the concept of money as barter, something valuable used in exchange for food, toys, candy. Let your children pay and receive your change for you.

Piggy banks can also introduce the concept of savings and investment. One coin at a time, you can help your kids understand how to delay gratification and garner savings for a rainy day.

Elementary School: Saving by Example – Ages 6 to 10
Youngsters in this age group may not be ready for a lesson on compounded savings growth, but they can benefit greatly by watching their parents model good financial behavior.

At this age, it’s important, too, to demonstrate the value of money and sound money management. That’s best done by giving them a dollar to purchase something at the mall, a yard sale, or at the movies. Let them see what they can get for a buck.

Elementary school kids can also begin to set financial goals. When they receive birthday money from Grandma, or an allowance, encourage them to save the cash for something bigger they really want. Show them how to compare prices at the grocery store and explain how different brands of the same product cost more or less.

This is also the time to link an allowance to chores. No one ever learned anything from being handed $5 for nothing, except to ask for more. Give your children the gift of feeling worthy and valuable, of earning good money for good work.

Middle School and Money Management – Ages 10 through Tweens

As your children mature, you can start letting them experiment with the money they earn through babysitting, shoveling snow or an allowance. Help them set up three accounts – one for their savings, one for spending money, and one (if you choose) for charity. And explain how interest works.

You may also introduce debt awareness this early on. For example, you can provide your child with a fixed ‘credit line’ each month to cover the cost of a larger purchase that isn’t immediately available to them with birthday or allowance money. They can work off the difference or pay it down with next month’s allowance, plus a small interest charge, so they can understand money borrowed is not without a cost.

These are the years to help children establish good saving and spending habits, and help them manage impulse-buying control. To help close the knowledge gap, continue to build financial literacy, and reinforce the lessons learned at home, look for activities or public events than help build money awareness.

High School and College Kids: Capital Awareness – Ages 14 to 21

High school and college-age kids are ready for more sophisticated lessons in money management. That includes the management of personal debt and credit cards. Many of the best and brightest graduates get themselves in financial hot water by spending money they don’t have and burying themselves in high interest credit card debt.

You can save your kids from a similar fate by explaining how interest rates work, and how those $300 designer sneakers cost much more if you pay with credit and make only the minimum monthly payments.

By paying $30 per month on a credit card that charges 18 percent interest, for example, that $300 would take 11 months to pay off and cost an additional $27 in interest.

Now is also the time to impress upon young adults the benefits of good financial choices – and the cost of poor decision making. Banks and other lenders rely on credit scores, a number that reflects your debt-to-income ratio and repayment history, to determine whether to issue borrowers a credit card or loans for a car or home mortgage.

They also use it to determine what interest rate they should charge. By making payments on time and keeping your debt to a minimum, consumers are far more likely to qualify for the most favorable, lowest interest loans.

Finally, there’s nothing like a lesson in compounded growth to motivate your adult children to save for their future. When they receive their first paycheck and must pay taxes, you can explain deductions, help them do their tax return and help set up their first IRA. Explain how their savings will grow for their future.

Some enterprising teenagers and young adults are even ready to run their own businesses. It’s worth a discussion. What can your kids do to create income aside from providing a service? Can they make something? Do they have a cool idea? Can they raise money from a venture capitalist (a relative) to build a small business of their own?

Teaching your kids to earn, build and save gives them financial tools they can use for a lifetime. You can help your kids, at any age, use debt wisely, put money away for the future and work toward becoming productive adults and smart consumers.

Footnote: 1. MassMutual State of the American Family 2013 survey.


Paula Brancato MBA, CFP®, CEPA, CLTC is a registered representative of and offers securities, investment advisory and financial planning services through MML Investors Services, LLC. Member SIPC. 6 Corporate Drive, Shelton, CT 06484, tel: 203-513-6000. Paula may be reached at or 646-813-9590

The information provided is not written or intended as specific tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel.


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