US News and World Report

How to Raise Financially Literate Kids

Take advantage of Financial Literacy Month to explore ways to teach your kids about money.

By Trae Bodge

Parents, your kids have probably begged you countless times to buy them something (and melted down when you refused). It's unquestionably irritating and easy to cast blame, but have you considered what role you play in all of this? If kids don't understand the value of money – where (or how) it works and where it comes from – how can they have perspective? Luckily, you can start teaching them early about the value of the dollar.

Ages 2 to 3. Kids ages 2 and 3 can start learning to count and sort, so why not play with coins instead of toys? "Help your kids to learn the name of each coin and have them sort and stack coins by size," says Amanda Mushro, author of the blog Questionable Choices in Parenting. "Just be sure to always supervise."

Kids this age love to pretend, so Mushro recommends that you create a play store. "As your child shops in the pretend store and hands over money to pay for their items, you are demonstrating the basics of commerce," she says.

And believe it or not, you can start to talk to kids this age about patience. An ideal age to start teaching kids about delayed gratification is 2 years old, says Emma Johnson, financial journalist and founder of WealthySingleMommy.com. "If they have their own allowance or birthday money, make them wait 24 hours to make any purchase," she says.

Ages 4 to 6. It's often not our first choice to take the kids shopping with us. But it is a great opportunity to educate them about the value of money since this is the age when they're ready to learn about needs versus wants. Give kids this age a "treat budget" when you head out for a day of shopping, says Bobbi Rebell, financial journalist and author of "How to Be a Financial Grownup." "Take the time in advance to explain that they can save it to use another time, divide it to use throughout the day or choose to spend it all at once," she says. She also urges parents to stick to their guns and not give in if they exceed their budget.

Ages 7 to 9. It's allowance time. Many parents struggle with whether to just give an allowance or to make their kids earn it. Chores are tasks that kids should do as a matter of course, and allowance should be kept separate and used to teach financial responsibility, says Gavin Samms, founder of the Genesis Innovation Academy, an Atlanta charter school opening this fall. "Teach them values pertaining to how much allowance goes to spending but also to savings and charity," he says. "Children should learn to appreciate watching their savings grow for some future goal as well as the joy of watching how their money can be used to help others."

Rebell is a fan of using story time to impart money lessons. Reading about Paul Revere led her 9-year-old to ask about taxes. A book about Steve Jobs prompted a discussion about business and entrepreneurship. She says, "When the talk is driven by questions your child is asking, it has a much stronger impact than if you approach a child out of the blue with a 'money lesson.'"

Ages 10 to 12. It may not seem like it, but kids this age are beginning to develop the ability to think hypothetically instead of just concretely, says Michelle Icard, author of "Middle School Makeover: Improving The Way You and Your Child Experience The Middle School Years." But there's a caveat. "Don't expect them to make good decisions about debit or credit cards where the money leaving their accounts doesn't feel as concrete as cash leaving their hands," she says. "This takes a while to learn, and their brains are still highly impulsive." Take it slow, and monitor all accounts together to ensure that your kids make smart choices.

Samms says that kids could feasibly start earning their own money at this age. He suggests that they start small jobs for neighbors, or come up with a business idea of their own. "It is good for them to think like entrepreneurs, and reinforce the value of 'earning' money, as opposed to assuming someone will always give them money for existing," Samms says.

Teens. For teenagers, it's time to start thinking about money like an adult. They are old enough – and hopefully responsible enough – to do things like babysitting and lawn care, and to save for the future and pay for some things on their own. Icard recommends helping your teens get comfortable discussing money with adults, a skill that will prove valuable down the road. "Give teens examples of how much you pay for services, what qualifications you would pay more for, what is of less or more value, and other examples of real-world money decisions in your family. Then coach kids on how to talk about money with assurance," she says.

More complex topics, like compounding interest, should also be on the table. Given the limited attention span of teens, try a teaser like, "Want to hear about how to get more money without even doing anything?" says Brett Graff, who's also know as The Home Economist, and author of "Not Buying It: Stop Overspending and Start Raising Happier, Healthier, More Successful Kids." This should buy a couple of minutes to explain the value of earnings interest – that if they save their money in an interest-bearing account, it will grow over time.

Overall, making money matters a part of your regular discussions with your kids will give them financial awareness now and ensure solid financial literacy down the road. Keep it positive and engaging and you can't lose.