Teaching Kids about Money Management: Budget, Save + Spend

Money isn’t always easy to come by. It’s important for kids to learn how money works and what it can do for them, so they can grow up with a solid understanding of the world around them.

Teaching kids about money management is an essential life skill that will help shape their future—one where financial security is attainable through hard work and determination.

If you don’t teach your kids how to manage money, they might learn bad money habits from observing other people’s poor behaviors. As a parent, you want your kids to be on the best possible path you can control, not one set by someone else!

This articles aims to help you provide the head start on money lessons you want to impart for your children. You might not have had them yourself growing up or learned these lessons later than you’d have liked.

Either way, by seeing them laid out below, we hope you can use them to teach your kids about money at age appropriate times.

This article outlines some tips on teaching kids about money management, including budgeting, spending, saving and investing.

How Do You Explain Money to a Child?

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The best things in life may be free—but most things cost money. Buying toys, video games, food, Starbucks, or really almost anything—costs money.

Being aware how much money gets spent will help kids make wiser decisions.

Our ancestors may have exchanged goods they possessed or services they could perform for those they might need in return.

Actions like trading their livestock to a thatcher in exchange for roofing repairs or their basket of eggs to a candlemaker for a refreshed supply.

Today we rarely barter and instead use currency in its various forms, like paper money, credit cards and transfers from bank accounts.

For real money, grown-ups know how much each coin is worth simply from rote memorization and learning as well as tacit knowledge, but to kids this may not be obvious.

The first step in learning about money and finance is understanding what money is all about. That means taking the time to teach kids how to value a dollar, what things cost and how to earn money.

It also starts with the definition of money.

What is Money?

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What does it mean when someone says, “I make a lot of money?” Or, “I have a lot of money?”

Money is any medium of exchange which you can use to pay for goods and services with a mutually-agreed value. That means both sides agree to the value of the product or service being bought as well as the value of the money accepted in exchange.

Currency is the term used by countries for the money in circulation within the economy. Said plainly, the coins and bills people use through paper (coin) money, bank accounts, credit cards and more. Even cryptocurrency.

What Should I Teach Kids About Money?

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You should teach your kids two main skills when it comes to money—and the earlier, the better.

  1. Ability to identify money and the value it represents (perhaps the latter gets learned more with time and experience)
  2. Ability to use money and make change.

Very basic to adults, but kids learning about banks and money won’t know this without someone there to teach kids about money.

Even more, schools probably won’t teach these basic skills in classes, only rather through examples to illustrate the lessons learned in math classes.

So, while learned indirectly through examples taught in ordinary instruction, it’s exceedingly rare to see schools outright teach basic personal finance and money concepts like this for kids to solidify their understanding of money.

You can teach your kids about money as soon as they learn not to put it in their mouth—something my wife and I have avoided so far with our two year old, but only because we don’t carry physical money.

If we had any George Washingtons, Abraham Lincolns, Alexander Hamiltons or Andrew Jacksons on hand, they’d likely have made it into our son’s mouth by now. Ahh, babies and young kids. You have to develop their financial literacy any way you can!

Regardless of when you start—though earlier is better—your child should count nickels (and dimes, quarters and bills!) by the end of third grade when they are 7-8 years old. That means counting and making change.

Practice regularly by playing shop, adding money to a piggy bank, doing chores and earning an allowance, or any other fun activity which gets their brains working and engages them.

That way, they’re more likely to retain the knowledge and see counting money as something to be enjoyed—not a task you suffer through.

Once your child can handle this task, it might be time to move onto debit cards for kids or even their own bank accounts for saving money.


When Can I Teach Kids About Money?

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You can teach your kids about money as early as them being able to walk and reach up to grab something off the coffee table or counter.

When kids can get a hold of money, they can start to learn about money. Soon enough, they’ll be young kids and expecting an allowance for chores they perform and eventually, want to save for college and invest money as a minor or even begin trading stocks as a teenager.

Learning about money, how to budget it, save it, spend it, and invest it starts early. They’ll quickly need help understanding it through useful lessons, good money habits, and seeing how you go about doing these same tasks.

Thankfully, you have numerous ways to teach your kids about all these important money milestones and personal finance topics.

Start their financial education with the concepts below and use them as ways to teach financial literacy skills to your toddlers, young children, tweens and teens.

It’s never too early to begin teaching real world examples of money and building their skills and life into something they’ll really want.

Related: 11 Best Allowance and Chore Apps for Kids [Easier Family Life]

Ways to Teach Preschoolers & Kindergartners About Money Management

1. Teach Your Kids Their Money ABCs

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At the same time your kids learn to read and recite their ABCs, they should also begin learning their Money ABCs. This includes how to count, make change and handle money.

You’ll want to teach your kids about these important concepts that underpin all personal finance and general financial education.

In the United States, you have six different denominations of coin in circulation today. A penny, nickel, dime, quarter, half dollar and dollar coin.

Bills in circulation today include the $1, $2, $5, $10, $20, $50, and $100 bills. In the past, the U.S. economy had bigger bills in circulation, but these have ended with no future return in sight.

Teaching your child about money starts with teaching them the concept of the dollar. Coins act as fractions of that unit while bills are multiples of that. 100 pennies; 20 nickels; four quarters; two half-dollars and one dollar coin all make up the same amount of money: $1 (one dollar).

Understanding the concept of money and how everything bases on one unit of currency, the dollar, is important for children.

In order to allow them to understand, you must teach them about dollars. For instance, $1 can buy X which equals Y. They might be different in count but the same in value.

In other words, 10 pennies will buy the same as one dime; four quarters has the same worth as a single dollar bill.

As a fun exercise, ask your child to think of how many combinations of coins might equal 50¢. The answer: 37 combinations (which includes simply using one half-dollar).

Consider repeating this game with other amounts, such as a quarter (14 combinations) or even a dollar (293!).

2. Show By Doing and Being an Example

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Money habits form early, even as young as seven years old. Be mindful that kids are watching your decisions on how to manage money.

You’ll want to remember this as you think about ways to teach your kids important money skills for developing their financial education and financial literacy.

If you pay with a credit card regularly, visit restaurants daily, frequent the grocery store with a weekly shopping specials ad and coupons in tow on double coupon days, or even when making an online purchase, they’ll eventually notice.

Just the same, if you frequently have disagreements about money with your spouse, they’ll catch wind of this in no time.

Therefore, you’ll want to set an example they can follow. That includes budgeting your money, holding regular finance reviews, saving for retirement, managing debt and minding personal finance decisions. In general, you want your kids and teenagers to manage money well.

3. Show Them the Cost of Money

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Simply saying something doesn’t always convey meaning. Actions speak louder than words.

You’ve got to do more than just say, “That pack of gum costs $2.” Instead, you can grab money from their piggy bank and walk down to the store to hand the money directly to the cashier. Let your kids handle the cash and change they receive.

Do this time and again and they’ll get the picture. Once you see their understanding, it might be time to upgrade to a prepaid debit card for kids and teens because handling physical cash and coins has become less common since the pandemic arrived.

But, performing simple actions like this carry greater impact than a conceptual explanation outside the store.

4. Start Saving Money Now

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Saving only gets harder as you wait. Not building those habits early makes them more difficult to adopt later in life, especially as you get accustomed to taking other actions with your money.

Therefore, begin saving as early as possible and making it visual for kids to understand these money lessons easier. That means having a piggy bank or some other jar or container to hold their money.

To amp up the impact, consider making the container clear or translucent so kids can see how much money they’ve managed to save. Visuals always work quicker and more effectively than thinking about progress in abstraction.

Consider using clear piggy banks to demonstrate how much they’ve saved. Once a year, you might consider cashing in and bringing all this change to your bank to deposit it into a savings account for kids.

Further, you can choose to invest it in some investment accounts for kids to let it begin compounding instead of simply sitting in the container and gathering dust.

5. Explain Opportunity Cost and Why You Need to Optimize Your Efforts

Opportunity cost is the cost of not making a choice, or the value of the next best thing you give up whenever you make a decision on how to spend your time or money. Said differently, opportunity cost is the loss of potential gain from other alternatives when you choose one alternative.

It’s important for kids to understand opportunity cost as early in life as possible.

As they grow up and decide what jobs to take or whether to spend time on extracurricular activities like music lessons or sports, opportunity costs will come into play often.

Without them understanding how costly those decisions may be, they might not make the best investments with their time or money. They need to see the value of their time and their decisions.

Related: Best Robinhood Alternatives

Ways to Teach Elementary and Middle School Students About Money

6. Pay an Allowance (Whether Earned or Not)

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There’s much debate about whether kids should earn an allowance or just receive one. Some reason, “Instead of giving them passive income, I want to make them earn it by doing chores around the house.”

While others still think handling money and learning how to live by a budget are just as important as instilling a sense of hard work and accomplishment through earning an allowance.

Through work, parents think chores and allowance can teach them the value of hard work and that earning money equates to work provided.

You can even pay extra money if your kid discovers an innovative solution to a problem or a more efficient and effective way of accomplishing a task.

This shows higher-order thinking and creativity earn rewards. This type of thinking creates the most desirable employees in today’s market and rewards these high income skills accordingly.

While awarding them with an allowance can also provide useful lessons on managing money and prioritizing wants vs. needs.

No matter your reasoning for paying an allowance, you have several useful tools available to manage such a system and fill their piggy bank.

For one, you can set up and automatically transfer money onto your child’s Greenlight debit card or bank account, paying them earnings for chores they perform around the house.

Likewise, this app also equites to the decision to open a savings account because it pays interest on card balances. This actually is a superior choice to a piggy bank because it pays interest as a savings account.

It’s up to you for the motivation chosen about whether kids must earn an allowance or simply give one to them.


7. Teach The Power of Restraint

Impulse buys ruin budgets because they rarely ever get factored into the expected monthly spending categories. Although, some people account for this by factoring in a “Mad Money” type category into their budget allocations.

However, because kids haven’t yet had enough time to develop a close relationship with delayed gratification (nor a fully developed prefrontal cortex), impulsive actions can take over.

Imagine also the money going out the door doesn’t belong to them if they use credit. That purchase has no chance of being considered smart money decision making.

You can thwart this by standing tough and instead making them have skin in the game. This might mean giving up something else they want (or need) as well as having them pay for it with their own allowance (at least in part).

If they choose to use their allowance on the purchase, this makes them connect the accomplishment of earning money with the pain of paying—or of being smart with money and making sure the purchase fits into a budget.

Either style of allowance system you choose will make them prioritize their spending better and allow them to see through the decision clearer. They’ve got a vested interest when you do this.

As another added tip, take a lesson from psychologists who recommend writing an angry letter and sleeping on it for at least 24 hours before sending it. Quite often, this means you got the urge out of your system and let a cooler head prevail.

You might find establishing a rule for any larger purchases that require a similar “cooling period” before making the purchase. You’ll probably note some of these otherwise impulse buys become forgotten in only a day’s time (or less!).

8. Stress Giving Back or Gifting to Another

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An important element to keep in mind for teens as they come of age is to teach kids about giving back or gifting to others. This can include financial gifts to loved ones or even learning how to gift stock (both popular long-term presents or donations).

Kids can pick a charity, organization or even someone they know who needs a little help from a friend or neighbor. Eventually, they’ll begin to develop a sense of fulfillment because giving doesn’t just help the recipient, but the giver as well.

This has become the core tenet to several debit cards for kids whereby they can earn money through an allowance and have it automatically budgeted in part toward charity. This instills a sense of giving back as you earn money as a means to help others.

It socializes problems you might not be able to help directly by yourself to everyone who can manage to give back. If enough people prioritize giving back, it can make a dent to work toward a brighter future for your kids to grow up in and raise their own families one day.

Ways to Teach Teenagers About Money

9. Open a Bank Account (with a Debit Card)

greenlight card

Younger generations have grown up with a cell phone in hand starting from middle school onward (if not earlier). They’ve developed a strong sense of attachment to their mobile phones, and with it, a digital-first lifestyle.

That means eschewing cash for more digital forms of payment (think PayPal, Venmo, ACH transfers) or plastic. The latter can mean kid’s debit cards, credit cards for kids or through parents’ cards as an authorized user.

It also means they’re ready to manage their own money and open their own bank account. There are numerous banking apps for teens available to assist with this action.

Apps like Greenlight Card or goHenry card that give you control over their spending, provide you real-time notifications of purchases they make and even allow you to block specific merchants online and off from using their debit card.

Plus, with Greenlight, they can even start investing in kid-friendly stocks through the app’s investing service.

These all-in-one financial apps start with small balances now but might help them manage their money when they leave home and have paychecks of their own!

Parents can help kids open these bank accounts.


10. Help Them Figure Out How to Make Money

If your teenage child finds him or herself bored often, I recommend helping them to get a job. Having a job can help keep their grades up, teach them responsibility, and make the time go faster! Not to mention put some more funds in their newly-opened teen checking account and debit card.

Plus, they’ve got plenty of time to work a new job, especially with the school breaks, flexible class schedules, weekends and time after school.

These are all opportunities to earn some money by finding a job. Help your teen find a job and earn their own money. Then, you can teach them how to budget it properly, save for college and invest for the long-term. #ParentGoals

11. Budget, Budget, Budget

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The moment your child starts to receive an allowance is the perfect time to start talking budgets. This doesn’t need to be some complicated, multi-tabbed Excel spreadsheet nor over complicating how they manage their money.

Using a simple tool to help them with budgeting, managing their money and investing it. They can see where their money goes, giving them insight into what they spend on and whether their limited budget aligns with their priorities.

You don’t need to preach intense frugality or going without, but showing how budgeting can teach balance and aligning your money with your goals and desires is invaluable when scaled across a lifetime.

Since your teen likely remains glued to their mobile device, get them active on a great money app for teens like Greenlight.

You can start teaching your teen the basics of budgeting at any time, but now is better than never. The earlier a child learns effective money handling strategies, the greater success they will have in life.

12. Compounding In Your Favor (Compound Interest)

Do teens care about such a thing? You might be surprised how exciting teens can get when it comes to different topics. Becoming investment smart isn’t uncool.

The sooner your teens start investing, the better. Compound interest is an excellent way to learn about the work that goes into money handling, and how rewarding it can be. You can see your efforts grow with time and eventually see them grow off one another.

Teaching your child about money management and investing at an early age will help them see the benefits and pitfalls as they grow into their adult life. Consider investing with an app like Greenlight.

You can pair this with an investing book for teens to teach them how compounding returns work.

13. Beware Credit Cards (and Debt!)

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When your kid reaches the age of majority in your state, you can expect your mailbox to get stuffed with credit card sign up offers. They’re legally allowed to hold a credit card at this point, (even if they have no credit) making them the rulers of their own fate.

You’ll only receive more offers for kids who are college bound and in need of a line of credit to cover expenses away from home. Things like gas, food, groceries, going out with friends, textbooks, incidentals and more.

Take this opportunity to head off these enticing offers by having a discussion about why debt from a kid’s credit card is a bad idea.

People can quickly get behind with credit cards because they think the line of credit can get them things they’ve always wanted right now. They can just repay the cost down line.

Few ever pay attention to the cost of this decision: considerable interest rates that compound against you. Essentially what you don’t want happening for you.

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