How to Teach Your Preschooler About Money
INTRODUCING MONEY TO PRESCHOOLERS
Wondering when to begin teaching your kids about money? A Cambridge University study determined that most kids’ financial habits are set by age 7. Even as a huge advocate for financial literacy, that figure blows. my. mind! If you haven’t started yet, do not freak out, as with all things related to children, there is grace and God is ultimately sovereign over your child. This study is not the final word. Simply be aware that there’s no reason to delay these conversations, and that TODAY is the best day to begin.
Preschoolers have questions and lots of them. As a parent, it’s inevitable that you’ve gotten questions about things like:
- the card you swipe at Target
- the man on the street corner holding a sign
- the cash that comes out of the magical machine in the bank drive-thru
- the hat full of dollar bills next to the lady singing at the farmers market
Kids ask these questions because they are trying to understand the world around them, and they are relentless in their knowledge seeking.
Helping your child learn the value of a dollar does not need to happen over a rejected plate of broccoli at the dinner table. These conversations should be frequent and happening as life occurs around you. Even if you are not having these conversations with your kids, they are definitely still learning how to manage and communicate about money because they are watching you closely and taking all kinds of mental notes.
By age 3 kids are able to articulate questions and are also starting to count, which makes 3 a fantastic age to begin teaching kids about money! Below are 3 Important Concepts and 3 Actionable Ideas to help your preschooler understand money.
3 Important Money Concepts for Preschoolers
1. Money is real and present every day.
Explain how money is earned in your house and then talk about what you buy or experience with the money you earn. Begin to help kids understand the role money plays in your home. How you spend money is directly tied to your values, so don’t miss the opportunity to talk about the values you hold as a family or the role of stewardship in your decisions.
2. Needs are different than Wants.
Preschoolers have zero trouble finding things they want in a store. Start identifying products that you see as needs or wants, and help your child start thinking through this concept.
Needs: costs related to housing, food, clothing, and school supplies
Wants: everything else
There will be products that fall into a gray space, and that’s ok. Don’t complicate this topic, but answer the questions they have directly and if they are ready to understand the difference between a name brand item that’s $50 vs. $25 for store brand, explain away. Continue this discussion as they get older and start to want specific brands, for now, we just want them to start discerning whether they truly NEED something they see at a store.
3. Good things take time.
One of the most important jobs we have as parents is to help children develop the self-control needed to navigate life. Self-control in children has been measured by psychologists for decades using the Marshmallow test. The research shows that delayed gratification can be taught to young children, and doing so can have a positive impact on everything from educational outcomes to social skills and even financial wellness. Praise your child when you see them waiting well. Practice will make progress, and this post by a mother and developmental psychologist is loaded with great ideas on how to strengthen your child’s self-control muscle.
One last note on this topic, Colossians 3:12 is an impactful scripture to prayerfully incorporate in your home as you teach kids about waiting patiently and delaying gratification:
“Therefore, as God’s chosen people, holy and dearly loved, clothe yourself with compassion, kindness, humility, gentleness, and patience.” -Colossians 3:12
The world could definitely use more compassion, kindness, humility, gentleness, and patience. Let’s raise the next generation to be clothed in patience and compassion.
3 Steps to Help your Preschooler Learn about Money.
1. Show kids the money.
It would be easy in today’s society to never use cash, but using real dollars and coins is very exciting for kids, and we WANT them to be excited to learn these concepts! Kids are curious about money, and they understand that how it’s spent is important to adults.
- Keep rolls of quarters and small bills on hand so that when they have a question or when you have a teaching opportunity, you can break out the bills and illustrate the concept. Make your illustration as tangible as possible.
- Make a game out of identifying the various coins and dollar bills.
- Show kids how many nickels, dimes and quarters make up one dollar.
Another activity is to take your child into the bank to deposit Savings, Birthday, College, or Christmas money. Yes, an online transfer or drive-through deposit is WAY easier, but taking them inside is an adventure and much more meaningful. Your preschooler will indeed bless the teller with some random story and probably receive a sucker for the visit.
When you just need to make a quick withdraw, drive your child through the ATM and narrate the whole experience. Explain how a bank holds the money in a special account just for you, and in exchange, you get extra coin just for keeping it there. Continue reinforcing good things come to those who wait!
2. Narrate your shopping decisions and let kids participate!
The grocery store is a natural place to teach money skills. Talk about your product choices, and let kids choose amongst a couple of options at a time. This strategy also works well if your child is choosing a birthday present for a friend or sibling. Point out the price and talk through why some items vary in cost even though they serve a similar purpose.
Admittedly, I am easily overwhelmed in a grocery store, and instead often choose to take this lesson to the local farmers market. The Farmers Market can teach so much to kids, it’s a gold-mine of opportunity. Every week I give both of my girls two dollars and let them pick out whatever they want. My girls look forward to Farmers Market day every week, and I’m pretty sure it’s not because of the vegetables...although Miss Susie’s peppers are delicious.
3. Provide an Allowance and teach them to give, save, and spend.
In order to teach kids about money, they need to experience real ownership and consequence, and the best way to achieve this is by giving them cold hard cash.
- How much? A good rule of thumb is .$50 - $1.00 per year of age per week.
- Then what? Divide all money that comes in among spend, save, and give jars. The jars provide a powerful visual and an introduction to budgeting as well as the values you are working to instill.
Give Jar: Use this to teach generosity. This also provides a specific opportunity to talk about the good things God has given us, and that because of his goodness, we share with others.
Save Jar: Use this to teach patience and the joy of delayed gratification. This can be used to save up for a specific toy or item of choice. When kids are in elementary school we’ll add an “invest” jar, but for now, we want them to start understanding that when we want something we may need to save up to accumulate the funds to buy it.
Spend Jar: Use this to help kids discern the real value of their selections and practice shrewdness. Will that impulse buy from the dollar bin still bring you joy in a week? This is an important practice field!
I absolutely believe kids need to be given an allowance, and also taught to divide their income into various buckets, but the specifics of how to do this will vary among families according to values. I can’t tell you which is best for YOUR family, but I will include the 2 main schools of thought and where my husband and I have landed (for now).
- Option 1: Allowance is tied to completion of work.
Using this approach, the money earned is tied to the effort the child is willing to expend. Parents choose this route because it is straightforward and how the real world actually functions. This approach can help instill a healthy work ethic and help the child feel capable while teaching them that hard work can be tied to greater rewards. My parents raised my brothers and me on this system and found it to be very effective.
- Option 2: Allowance is freely given.
This option ensures kids learn how to deal with money regardless of the number of chores they complete. Some parents take the approach that kids should help with the household workload as a contributing member of the family and that this work should not be tied to money. This approach does allow kids to gain experience with money which is important at an age when they aren’t always making the most logical choices, but may not be as empowering to a young child, as their effort has no correlation on how much they earn.
- Option 3: Some hybrid of the two (this is where we have landed).
We want our girls to have consistent exposure and experience with money, but we don’t want to bank their financial literacy solely on consistency in enforcing chores at ages 3 and 5. We give them each $1.50 per week, and allow them to earn more by identifying and solving a problem or by doing specific chores. This ensures that kids have money each week that is easily divided to their save, spend, and give jars, but also helps instill the truth that hard work often yields better reward.
The most important thing is that you start as soon as you realize your child is ready. You can always change course, and even if the process isn’t perfect initially, you are making a positive impact on your child’s financial future - one quarter at a time.