Financial literacy and budgeting is an important skill that children should learn so that they can establish healthy habits from a young age. But, it might feel daunting to think about distilling this complicated information down so that your child can understand it. One way to teach kids about money is by buying them a wallet and letting them explore what it's like to make, spend, and save money.

However, before you add a children’s size wallet to your shopping cart, let’s make sure your child is up on their financial literacy so they know that this isn’t Monopoly money they are carrying around.

If you don’t know where to start with teaching your children about money, we’re here to help.

How to teach kids about money

1. Start with the basics

Children aren’t born knowing about what money is, so you really need to start at the beginning! Dr. Seuss has a great book on the history of money and how we use it. Check out One Cent, Two Cents, Old Cents, New Cents at the library or find it online.

To get more into the details of specific types of currency, create a game where children match up pennies, nickels, dimes, and quarters with the appropriate value written on construction paper. Then, by creating groups of coins, show your children how many of one coin equals another. You can more fun math games here.

2. Create a savings plan

Once your child understands the different values of money, help them learn how to save money so they can buy what they want. For younger children, you can help them start learning about savings with a clear jar that lets them see how much money they have. Classic piggy banks are great, but the clear jar is especially helpful for visual learners.

As your children get older (pre-teens and teens), help them trade up from the jar to a bank savings account. By that point, your child may be working part time, doing chores for allowance, or getting very close to that first job, so a savings account will be an important next step and set them up for success.

‍3. Explain what things cost

You’ve taught your children about what money is, why we have it, and how to save it. Now, they are going to be itching to spend it!

When you are out at the store together, talk to your children about how much certain items cost. We need cereal to eat for breakfast and that box of cereal is $3.00 so we will add it to our cart. We don’t need that giant beach ball, which costs $5.00 because it’s not within our grocery budget of $100, so we will not be buying that today.

We get upset with our children when they get a case of the "gimme gimmes", but if they don’t know how much things cost, it’s easy to get carried away with wanting more and more. Talk it out so they will learn and then if they want to spend money from their savings jar, they can bring it to the store next time and buy that beach ball. Make sure they are doing the counting of bills and coins to get that math practice in too!

4. Show them how to earn money, not simply expect it

Some of those savings in the jar at home are from Great Aunt Mildred who graciously sends $10 in your children’s birthday cards. (Those were the days, right?) However, children also need to learn that money doesn’t grow on trees, or in birthday cards, and it should be earned.

Instead of doling out allowances, set expectations for your children to help out around the house. For bigger chores, allow them to earn money for their work. Setting the table every day may be an expectation, but vacuuming the whole house could earn them a few dollars. Be clear about what is expected and what’s worth a paycheck and then be consistent so you can have a discussion around how much they need to work to earn something they want. This is also a great way to teach kids about responsibility.

It’s also never too early to teach children about entrepreneurship. If they want to set up a lemonade stand, they should use the savings from their jar to buy the supplies and then set up shop. You’re already moving from addition and subtraction into balance sheets, but it’s not that complicated! Your tweens and teens can also mow lawns for neighbors, shovel driveways, or babysit to earn money for things they want and save for college. When your children have a goal in mind, use those math skills to help them figure out a savings and work plan to get there.

5. Help them set a budget

Budgeting for kids is a lot easier than budgeting for adults since they don't need to worry about mortgages, rent, car payments, taxes, or any of those other big ticket items. Instead, set up a Google spreadsheet with them and outline their expenses (think: school lunch if they have to pay for it, snacks, toys, etc) and their "income" (think: summer jobs, allowance, birthday money, babysitting, etc). Tracking this information will help them establish strong habits that will lead to financial literacy later in their life.

We hope this guide has provided you with useful information so you can get started teaching your child about money and budgeting. Now you can go buy them that wallet!