Important Money Lessons For Kids Of All Ages

Financial education is an important step in your child’s life and it’s surprising that our school systems do not teach these life skills. As a parent, it is up to you to teach your son or daughter how to save money, keep a checkbook balanced, and choose a credit card. Parents are the number one influence on their child’s financial behaviors and help them to live financially fit lives. They need to be taught the essentials about money at an early age and they are never too young to start.

Below are important money lessons for kids of all ages, as well as activities to illustrate each point.

Ages 3-5

The Lesson to learn: You may have to wait to buy something you want.

Just like any education, the first lesson sets the foundation for their future. Kids at the age of 3 to 5 need to learn that if they really want something, they should wait and save to buy it. Kids at this age need to learn that going into a store doesn’t always mean you’ll buy something. This is the best stage to teach saving money.

Activity: Saving

The first step of the activity is to have your child set a goal, such as buying a toy. Make sure that the toy is inexpensive and small, so that the saving timeframe is short. If the child needs to save for months to attain the goal, then they will lose interest fast. Then it just gets frustrating, and it gets hard for them to wrap their head around. The goal is for the child to be more cognizant that they are saving for a goal. You want to set them up for success. Every time your child adds money to the savings jar, help them count up how much he or she has, talk with her about how much they need to reach her goal, and when they will reach it. All those behaviors are really fun for kids. And it gives them a sense of the importance of waiting and being patient and saving.

Ages 6-10

The Lesson: You need to make choices about how to spend money.

This next lesson is a hard one for kids to understand, but this age group is old enough to grasp the concept. Money is finite and it’s important to make wise choices. Letting your child know that once you have spent your money, your money is gone is the basis of this lesson. Kids need to know that financial choices impact future decisions.

Activity: Choices

This activity is important because it brings reality into financial lessons. Include your child in some everyday financial decisions. For instance, explain the grocery store budget versus the shopping list you have created. Talk about deals, such as buying everyday staples like paper towels in bulk to get a cheaper per-item price. Discuss how buying the cheaper orange juice that is on sale rather than the name brand at full price is smarter because you want to purchase the steaks for dinner. Discuss the choices and decisions and their consequences or successes.

Ages 11-13

The Lesson: The sooner you save, the faster your money can grow from compound interest.

At this age, you can shift from the idea of saving for short-term goals to long-term goals. This is a great opportunity to introduce the concept of compound interest. Bring the idea of making your money work for you into the conversation. Educate your child on what bonds, CDs, and money market accounts are. These are great starting points for kids because there is no further education needed as stocks or investments might need.

Activity: Interest

Work with your child to calculate compound interest rates. Teach them how money grows with interest by purchasing a bond or CD. You can have your child save the money to purchase the bond on their own or purchase a CD toward their college education.

Ages 14-18

The Lesson: When comparing colleges, be sure to consider how much each school would cost.

The first part of this lesson is making sure kids know that a college education is an important investment. They should know that people with a college education earn more than those without one. The second part is making sure your child understands the cost of investment versus the degree earned and the return on the investment. Educate your child on the cost of student loans and reinforce the previous lesson of compound interest.

Activity: Choices

Have your child compare how much each college costs, what the employment prospects of graduates are, and how much student loan debt could affect your child’s lifestyle after graduation if he or she attended that college. As with any investment, analyze together whether the money put in will pay off in the end.

Ages 18+

The Lesson: You should use a credit card only if you can pay the balance off in full each month.

This final lesson is the hardest to learn as living within your means can sometimes be difficult as life has a way of creating big issues. It is all too easy to slide into credit card debt, which could give your child the burden of paying off credit card debt at the same time as student loans. Instill the practice of paying off your balance in full each month. Have your child know when it is time to use a credit card or choose a low interest loan. Make sure your child knows that with good credit, comes great financial options.

Activity: Consequences

Explain that it’s important not to charge everyday items so when an emergency arises that you can’t cover with savings, you can charge them without exorbitant rates. However, even better than credit cards is building up at least three months worth of living expenses in emergency savings. Saving is always the best lesson.

Each financial lesson builds as a child gets older and will give your son or daughter a head start in their financial future. Give your child a giant head start by setting up a trust in their name. AAFMAA can help you get started, give us a call at 800-522-5221 or visit aafmaa.com for more information.