Penny For Your Thoughts: The Ultimate Guide To The Best Financial Education For Toddlers
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If you’ve been following us for a time, you’ll know that we have a wee one who will be turning 4 in just 6 months.
Parenting, as you know, is an ongoing process.
And if, like us, you’re engaged in looking over the past year, you’ll probably also want to take a look at how you parent and what you’ve been teaching your child.
We’re publishing this ultimate guide to the best financial education for toddlers because one of our goals this year is to start providing our wee one with a solid financial education, mostly as compensation for our own lack as kids and to make sure that he doesn’t eventually end up with the kind of financial disaster that we created in 2018.
Now, technically, depending on whose definition you follow, he’s still a toddler.
And you might think, “Is it too early to teach a toddler about money? When should you teach a child about money? At what age should kids learn about money anyway? And why is it important to teach children about money?”
As per Jim Rohn, “Where does it all start but with a child and a dollar?”
There are many things you can teach a child about money – things that I wish I’d known early.
These are things that would’ve saved me a lot of trouble, things that I wish I’d known many years ago. Things that were so important they should be a mandatory part of education.
So, if you’ve been asking yourself, “How do I teach my toddler the value of money,” then you’re reading the right post.
Side Note: Due to the length of this post, I highly recommend bookmarking this page before reading it. Enjoy!
When should you teach a child about money?
No post could ever be called an ultimate guide to the best financial education for toddlers without tackling this important quiestion.
When should you teach a child about money?
Answer: as early as possible.
Obviously, you’ll need to tailor your expectations and not be frustrated that your 2-year old still can’t grasp the difference between a credit and a debit.
But at that age, your child should be able to have a basic grasp of counting and this skill is the cornerstone upon which future money management skills will be built.
Obviously, this depends on the child and you yourself will know how ready your child is.
I know that by age 2, my son’s ability to count was quite impressive in that he can count in 2 different languages.
Now he’s 3 and he can count in 3 languages too.
So, judge how ready your child is but also remember that you could encourage your child to be ready.
Side Note: Obviously, you can’t force this but a gentle nudge is sometimes all it takes. For example, if you involve your young child when you’re budgeting or making a shopping list, then he’ll begin to have a more concrete idea of what’s going on financially, why you can’t just get anything off the shelf and why he can’t spend all of his money.
Why is it important to teach kids about money?
Now the major reason that you want to teach kids about money is that the earlier they learn about it – how it works, how to earn it, how to save it and how to invest it – the earlier that excellent financial habits will form and the better your chance of securing their future against economic downturns, a shifting real estate, the vagaries of employment as well as their own financial irresponsibility.
In other words, showing children the basics such as how to budget, spend and save will establish good money habits for life. And once kids develop good financial skills from an early age they’ll be far more ready to meet the financial challenges of adulthood.
At least, a lot readier than many of us are.
Look at these UK statistics:
- ✦ 35% of the adult population say they don’t have a pension.
- ✦ 43% of the population admit they don’t know how much they will need.
- ✦ Over half (55%) of people estimate that up to £100,000 is enough to retire comfortably.
- ✦ Only 28% of people think they are on track to meet this.
- ✦ The recommended amount for a comfortable retirement is £260,000–£445,000, depending on accommodation costs.
And in the US?
Well, these are the stats according to Northwestern Mutual,
- ✦ More than one in five (22%) Americans have less than $5,000 saved for retirement, and 15% have no retirement savings at all. That’s an improvement from 2018 when 31% had less than $5,000 saved and 21% had no retirement savings at all.
- ✦ While 10,000 Baby Boomers turn 65 every day, nearly one in five (17%) have less than $5,000 saved for retirement and 20% have less than $5,000 in personal savings. For Gen X, the numbers are greater — 21% have less than $5,000 saved for retirement and 22% have less than $5,000 in personal savings.
- ✦ More than half (56%) of Americans don’t know how much they’ll need to retire comfortably.
- ✦ More than a fifth (22%) of non-retired U.S. adults believe it is not at all likely that Social Security will be available when they retire.
- ✦ On average, people think there is a 45% chance they will outlive their savings, and 41% have taken no steps to address it.
Pretty grim, aren’t they?
But also, quite interesting to see – especially the bit that shows that in both country, far too many people don’t know how much they will need.
And trust me, when you don’t know what you need, it can be too easy to think that:
✦ You have enough time to save up (chances are, you don’t).
✦ You already have enough money (chances are, you don’t).
Or, you could very well swing the opposite way and start dreading your future because you worry that:
✦ What you’ve already saved up isn’t enough (it may well be).
✦ You don’t have enough time.
The point is: you won’t know until you find out. And you won’t find out unless you start your personal financial development plan.
So, give your kids a good foundation and teach them that whilst money certainly can’t buy happiness, freedom, culture, power or influence – values we believe describe a blissful life and which we all would love to enjoy, it can certainly create or alleviate stress within yourself, your close personal relationships and greater society as a whole.
According to The Richest Man in Babylon, when the people are wealthy, so is the society.
In other words, financially educating your toddlers is not only for themselves, it’s also a valid contribution to the strength of your own community.
If the state of your country’s economy is worrying you, then a concrete step to take to help is to a) become financially educated yourself and b) financially educate your kids.
And the earlier you start, the stronger the habits will take root.
Remember what acclaimed financial author Dave Ramsey wrote, “If you don’t teach your kids how to manage money, somebody else will. And that’s not a risk you want to take!”
The best way to teach a child about money
There are so many questions we want to tackle in this ultimate guide to the best financial education for toddlers.
Another questions as important as the one before is obviously, “What is the best way to teach a child about money?”
Simple answer: by example.
You’ve got to lead by example. Especially when your teaching very young children who learn by copying.
They’re like sponges.
So, take a really good look at the way you behave around money.
Do you constantly spend without saving?
Do you ever pay attention to what’s going on in your bank account?
Do you ever do a budget?
Do you just buy whatever they ask for because they’re only little once?
Do you just swipe your card and hope that there’s enough cash in your account to get your current transaction approved?
Because if so, that’s the kind of attitude about money that you’ll most likely pass on to your children.
However, if you are consistently giving children positive messages about money based on your own actions, words and experiences, this will soon become normal to them.
Side Note: I include words here because they are insiduously powerful and their reach extends well into adult life. Claiming that you are “dirt-poor”, that there is not enough money to go around, that you don’t know where it all goes, that it’s never enough, that it doesn’t grow on trees, that you have to work at least 40 hours a week for over 30 years just to eke out a living, that rich people are all lying, conniving b**t**ds and that money is the root of all evil…all these things can really screw up someone’s relationship with money.
If this is your own relationship with money, then you need to do this twice a day – morning and night – until your own inner dialogue changes.
So, again, the best way to start teaching young children about money is to start becoming more financially responsible yourself. And then involve them in the process.
Trying to save up?
Then the next time your wee one wants a toy in the shop that may be beyond your budget, say so.
Obviously, don’t say, “Oh, we’re poor,” because what kind of message will that plant in your child’s head?
But be honest about your financial goals.
For example, I was in the toy aisle of our local shop with my 3.5 year old, who was admiring the toys and giving me a commentary of which ones he wants, which ones he doesn’t need (as he already has them) and which ones he can’t play with (because they’re for babies and he’s a big boy ha ha).
He’ll inevitably come to a point where he’ll pick a toy, wave it around under my nose and announce that it’s The One.
I look at the price, which is usually about £15 (he’s got expensive taste, my son) and I say, “Darling, that’s a wee bit too expensive. That means, we need a lot of money to buy it now. Do you have enough money? Because I don’t have the money with me just now.”
Most of the time, he’ll respond with a pout and say, “I have money at home (he does). I really want it, mam.”
Me: “I know, darling. And if you really, really, really want it, then we’ll need to save up for it before we can buy it. How about we put it on a shopping list?”
Wee one: “Okay!”
That’s it. End of discussion.
We then either move on to the next toy or move away from the toy aisle exactly.
Side Note: Obviously, this won’t work for everyone. I’m lucky that my son can put toys back. I know some kids would have a really tough time doing that so waving temptation in front of their face and then telling them, they can’t have is almost like waving a flag in front of a bull. So, consider this a great place to start: building up their ability to resist temptation.
You know your child best.
Another Side Note: If you’ve never done any work on your own finances before and you want to start now, then these are the three resources you need to get started:
1. Guided Meditation For Wealth And Abundance: T. Harv Eker. It all begins in the mind so you need to make sure that your own dialogue is positive.
2. Financial Planning Tips For The New Year: How To Stop Living From Paycheck to Paycheck. You need an effective plan to follow so you can succeed.
3. Read the books, listen to the audio and watch the videos. You need to surround yourself with people who’ve already gone before you. And succeeded.
Money skills for toddlers
So, exactly what money skills should you be teaching your toddler?
It’s all well and good to commit to becoming more financially educated so that you can set a better example but young children don’t have the brain development of an adult.
Well, we start off simple and easy because if you make it too complicated, your child will either lose interest or flat our refuse to learn.
This is what we do, in order of importance, because some skills need to be built on others.
Side Note: You’ll probably have to rearrrange this list a bit to account for your own child’s skills and interest – which vary from one child to the other. I’m also not going to bother putting in a recommended age for teaching a certain set of skills because children learn at different paces.
For example, my own 3.5-year-old is very interested in and, therefore, deeply understands the whole notion of putting money in a bank – which isn’t true for all 3.5-year-olds. In fact, some sites recommend teaching children at about the age of 8 what earning money means, which in the case of my son would be far too late and doesn’t take into account his natural curiousity, interest and aptitude.
So, use this list as a guide and adjust as needed to suit the needs of your own family.
At a certain age, toddlers the world over start learning how to count.
The learning process in young children completely fascinates me because sometimes, it’s like they get the information from out of nowhere.
It doesn’t matter if they’re going to nursery or staying at home, if you’re deliberately teaching them their numbers or not, they just suddenly seem to learn.
I reckon it’s the copying and imitating that they do so well.
In any case, regardless of where it comes from, financial experts agree that the first step in any solid financial education is to teach your child the skill of counting.
You can’t really teach more complex skills like adding and subtracting if they don’t even know what 1, 2 or 3 means.
So, start with the basics.
Once you can trust your toddler not to put things in their mouth, you can start introducing local currency.
Toddlers are very visual and tactile learners so handing them coins (and when they’re a wee bit older, paper bills) and describing what they look like will make it easy for them to grasp the often intangible concept of money as well as to remember far more complex financial lessons that will come in the future.
Another way to ensure that they retain the important information you’re imparting is by making the learning experience fun.
Try building the following into your financial education plan:
It can be a sorting game, where they have to group the coins into similar value.
Mix & Match
Or maybe you can do a mix and match. Put pictures of specific coins one after the other. Give them a pile of coins that contains a mix of denominations. Let them match the coins they have to the pictures in front of them.
Eventually, when they’re a wee bit older, you can start explaining the concept of equivalency, where two 1p coins is the same value as one 2p coin.
At some point, your child will become interested in where money comes from and where it goes.
In our case, it came when our wee one was about 3.5 years old. So, it was rather early for our family.
But hey, you just roll with it. The last thing you want to do is to curtail your child’s desire to learn. It’s a trait that serves and will, in fact, continue to serve them.
So, once they start asking where you go every day when you leave them with a caregiver (and if you’re working, that’s usually what happens, right?), it’s a good idea to start introducing the idea that you’re going to work to make money.
In fact, I was having a discussion with my son about The Richest Man in Babylon and I told him – in an exaggeratedly shocked voice which made him want to focus on what I was saying – that the main reason people don’t become wealthy is because they don’t know how to make money.
And he informed me dutifully that “Dad does. Dad knows how to make money!”.
Eventually, you’ll want to go beyond explaining how you earn money and start discussing how your child might make his own.
Right now, my son is convinced he’s too tiny to make his own money but eventually, we’ll start introducing the idea that there are little things he can do to start – and therefore, nurture his sense of entrepreneurship.
Side Note: It’s a good idea at this point to emphasise that, contrary to common belief, you earn money by giving value to the marketplace and NOT by giving your time. I know many of us say that we earn £8 per hour but actually, that’s false. The value you give takes time, that’s all.
This is why you can climb up the economic ladder and start making more money for the same amount of time. For example, if you start at £8 an hour, if you get better and more skilled at what you do, you could soon find yourself earning £14 an hour, £30 an hour, £100 an hour.
The sky is really the limit.
So, make sure that you get this basic fact right when you’re explaining to your child how to make money. It’s a lesson not just on finances but also – and more importantly – on personal philosophy.
And this will serve them well in all aspects of life.
Think budgeting is too complex for young kids?
You might be surprised.
Obviously, you can’t expect them to understand the nuances of budgeting – like filling out the many fields that comprise expenditure and income. But what you can do is get them involved in the process.
Actually, if they’re already interested in where money comes from and how you earn it, you’re already in a great position to start talking about income as money that comes in (and the importance of writing it down to ensure you only spend money you have).
Expenditures, on the other hand, are simply things that you buy with the money you have.
In fact, this idea is something you need to make sure they learn so you need to keep repeating it (with words but most importantly, with your actions) until the message hits home: For the most part, they can only buy things with money they have.
Side Note: Actually, from personal experience, I would recommend that you teach your child – no matter the age – that it’s best to keep loans to a minimum.
Being neck-deep in debt is something I would not recommend as a learning experience to anyone, particularly if you have a young family because the stress it brings to a relationship can be life-altering.
Anyway, you can include your toddler whilst you go over your family’s major monthly expenses, preferably in writing so they can see the numbers.
Things like the home you live in, the food you eat, the electricity that powers your electronics and appliances, the water you consume etc are all services that they – and in fact, most adults – take for granted.
Seeing the numbers in black and white give your explanations more power and helps children understand why, sometimes, you can’t buy the things they want at the shop.
Another Side Note: One more reason you want to start your children’s financial education so early is because this will also force you to take a closer look at your own relationship with money and the kind of principles you’re applying when managing it. To paraphrase Jim Rohn, you need to share what you know (AKA pour out your cup) so that your own capacity (AKA understanding) grows.
Once your child understands the meaning of income and expenses, talk through the difference between needs and wants.
Needs vs Wants
At this point, one great game that will will attract your toddler’s interest, get them involved in the process of budgeting and cement the idea that your child needs to prioritise what he’s going to buy with the money he has is Needs vs Wants.
This will be quite difficult for young kids to grasp at first because they honestly can’t tell the difference.
It’s almost as difficult for them to understand as the difference between a hunger pang and a craving.
At about the time you start talking about needs and wants, you can start giving your toddler a small allowance.
Like anything else, great money management skills can only be developed with practice. And to practise managing money, you actually need to have money.
So, for your child to really grasp the information you’re imparting, you need to give them the chance to learn through practical experience.
Give them an allowance – even if you’re the one doing most of the budgeting in the first place.
A great way to start is by giving an allowance commensurate with their age. It starts small and then eventually goes higher the older they get, which is a logical way to explain the concept of a
Now, if you do choose to give an allowance, you need to make sure that you set some ground rules which you apply consistently.
I personally think this is an excellent training ground for parents and child to prepare both parties for the teenage years.
When both sides know how things work and trust each other – before hormones and peer pressure start interfering – you’d have diffused a lot of the tension that normally start appearing when the first child hits 13.
What should a child do with a dollar? (AKA What should a child do with money?)
First important question to ask before you set an allowance is a question that notable business philosopher Jim Rohn always touches on in his seminars: what should a child do with a dollar (or whatever currency you’re using)?
To answer this question, I’ll include some of his own words from the seminar Challenge to Succeed.
What should a child do with a dollar?
You won’t believe the difference in philosophy.
Here’s one philosophy: it’s only a child and it’s only a dollar. What difference does it make?
Wow, what a philosophy! It’s only a child and it’s only a dollar.
Where do you suppose everything starts for the future?
Here’s where it starts: a child with a dollar!
You say, “Well, he’s only a child once, let him spend it all.”
Well, when would you hope that would stop?
You say, “Well, wait until they’re 50 and broke like me and then they’ll change.”
Do you want them to wind up like you?
And the answer’s no.
So we gotta teach them a better philosophy. If a child wants to spend the whole dollar, with everything you’ve got, you gotta persuade him not to spend it all.
Using Jim Rohn’s example of a child with a dollar, what should you tell your child to do if he can’t spend the whole dollar?
Go back to The Richest Man in Babylon and you’ll find a classic financial plan that, if your child learns until it becomes second nature, could catapult him to unprecedented wealth: pay yourself first.
Make sure that no less than 10% of any money your child earns or is given is diverted to their own savings.
Teach them that another 10% goes to charity so that they can translate their tendency to generosity into concrete actions.
And set aside another 10% to a pot of money that they can later use as investment.
Then teach your child to spend the remaining 70% wisely.
Compare the things they want to buy:
✦ Is it a want or a need?
✦ Is it expensive or inexpensive?
✦ Is it made well or poorly?
✦ Is the item good value for money or will it break within a few days?
✦ If they buy it, what will they be giving up, what other item can they not buy?
But, as we wrote earlier, don’t just tell them, show them.
Do this yourself.
Again, doing something is the best way to show children in general but especially very young children in particular what they should be doing.
At this stage, they’re like sponges and you want to make sure they absorb all the right information.
The fastest way to do this is to practise what you preach.
Now that we know exactly what children have to do with with their money (hint: it’s exactly what adults should be doing), consider the following rules. Obviously, if your children are on the young side, I wouldn’t expect them to be able to really take part in this sort of discussion and you’d have to make most of the decisions yourself.
Choose an amount.
As I suggested earlier, consider giving an allowance that corresponds with your child’s age.
Choose whether your child will have to earn it.
Some parents like to get their kids earn their allowance by doing chores. Others don’t.
I’m in the don’t category.
I’ll have to write a completely separate post about this but long story short, you want to keep the concept of allowance from household chores precisely because they are separate.
Managing money is a completely different lesson and has nothing to do with the equally important – but completely different! – lesson on life skills, cleanliness, organisation, teamwork and productivity that you impart when you assign chores.
Another reason why you want to keep these two things separate is simply the fact that it transforms money into something that is withheld or given based on behaviour, which makes it very easy to use it as a reward or a punishment.
And if you’ve read our previous post that talks about exactly this thing, you’d understand why this should never be the case.
Side Note: If you’ve not read that post, do pause here and read it now because it will explain so much.
That said, I’d like to quote from this post because this is extremely important (though the others are equally relevant):
“When you reward and praise, it’s coming from the outside. It’s not something that the child really wants for herself. You’re basically manipulating your child into doing what you want.
And the damage here can be far-reaching.
Extrinsic motivation (AKA the type of motivation that comes from outside yourself and the type of motivation that a child develops in response to the constant barrage of reward or praise) doesn’t last long.
Like an addiction, people are liable to change their behaviour just to get more of it. And worse, the motivation to do whatever needs doing for the simple fact that it’s the right thing to do begins to diminish.
In other words, rewarding and praising are counterproductive because you’re actually making it harder for children to want to do what they are being praised for – unless they are promised a reward first, that is.”
Decide what you expect your child to start paying for. Since your child is a toddler, there’s really not much they can buy and they probably won’t want to buy much.
My son has three things: books, toys and *some* sweets.
Now, some people might say they can’t buy any of those things and should save up all of their money instead.
It doesn’t work.
First of all, when you’re an adult, you don’t save all of your salary. You earmark some of it for spending on necessitiies, some on satisfying wants, some for saving and some for investing (at least, this is what you’re supposed to do).
The amount and the percentages themselves don’t matter.
It’s the actual act of allocating for things they need and things they want that they need to get used to.
Be consistent with rules.
Pay your child’s allowance on the same day each week so they know what to expect. But more importantly, so that when they’re older and are learning how to budget, it would be easier to factor it in.
I discourage you from using money as a tool to reward “good” behaviour or punish “bad” ones.
Your child’s relationship with money will dictate the way he manages it.
And with the negativity currently attached to wealth and riches, your child already has a great challenge ahead of him.
Because, according to the Laws of Attraction and Manifestion as well as the best of my personal experience, like attracts like.
So, if your child looks at money positively, he’ll tend to have a positive relationship with money. He’ll tend to keep a lot of it.
However, if your child looks at money negatively – as many do (ie money is the root of all evil, all wealthy people are conmen etc), then his subconscious will be working against him and he will end up with money flowing from his hands at a faster rate than he receives it.
I also discourage you from attaching money to certain chores.
Remember that if you start young, you’re cementing a behaviour.
It might be cute just now to pay your toddler to help you put away his clothes but do you really want to be paying your teenager for something he should be doing for himself anyway? Or even worse than paying, negotiating a pay raise before the task is done?
See all those chores they need to do because they’re part of a family and every member should be doing their part (such as keeping the sitting room clean and tidy, planning a meal for the family)? Or those chores that they need to learn how to do for when they become adults (like making their own bed, washing their own clothes, etc)?
Those should never be paid.
Unless, it’s your turn to do the dishes but you’re swamped with work and can’t do it. Then, it might be an idea to offer payment for your child to do your share of the work.
When your child is a toddler, they will, more often than not, have no impulse control.
They will most likely conflate needs and wants.
They will either want to spend all their money to buy a useless toy or a really expensive box of chocolates.
It’s up to you as the parent to curb this tendency.
I’ll repeat Jim Rohn’s statement here: With everything you’ve got, you got to convince him not to spend it all.
And if your child chooses to spend the entire allowance?
Then, the next time she wants something, make sure to point out that she’s already spent all her money and will need to wait until she’s got more money before she can buy anything again.
Don’t bail her out or give her money so she can buy what she wants then and there.
Yes, it feels good to grant their wishes, play the hero.
But there is something greater at stake here – their financial security in the future.
Better they learn at the age of 3 what the consequences are of overspending than to learn it at age 33, when he has bills to pay and a family depending on him.
Increase your child’s allowance as they get older.
The older your child gets, the better she’ll become at money management if you’ve been giving her a solid financial education.
In that case, grant her more responsibility.
She gets a higher allowance (some parents like to give an allowance that’s equal to the child’s age) but she’s also now expected to pay for more than just books, toys and sweets.
If she’s started nursery, daycare, pre-school or reception, she could also be in charge of her own lunch money. Obviously, you’ll be helping her choose what items to buy for lunch, how much to spend, where to buy.
Does this seem overly complicated?
It’s not meant to be and it doesn’t have to be.
You would know where all the healthy stuff is so just let your toddler tag along when you go shopping for the family and spend some time talking about her food choices.
And then just keep adding responsibilities every time you give your child a raise (and be involved less and less).
It is absolutely essential that you teach your child the value of saving.
I’ve mentioned it over and over again and I’ll keep doing so right until the end of this post.
What you don’t want to do though is to just tell your child they need to save without giving them the mechanics, the reason behind the importance of saving, the rewards of saving or the consequences of not saving.
I can tell you from personal experience that your child will ignore any advice that is coated along the lines of “I know better so you just do as I say and save your money.”
You need to explain because they need to understand what could happen if they were to save and the potentially disastrous consequence of not saving.
So, here are a few concrete ways you can start teaching them.
Use a clear jar instead of piggy bank.
Whilst it’s a great idea, the piggy bank doesn’t exactly show your toddler the progress they’re making.
They can’t see the money actually growing.
Whereas, when you use a clear jar, they could see what happens when they put money in.
Yesterday, they had two five-pound notes.
Today, after putting more money in, they have two five-pound notes and one ten-pound note!
How awesome is that (if you’re a parent, you have to act especially enthusiastic if you want to capture their interest long enough for them to give this a shot)?
Start making lists
One tool advocated in How to Talk so Little Kids Will Listen: A Survival Guide to Life with Children Ages 2-7 is that of making lists.
If your toddler is on the verge of a tantrum because they desperately want something that you’ve already said no to (like that £100 toy that looks so shiny and pretty on its pedestal in the shop), one thing you can do to avert the emotional blow-up is to whip out a pen and paper and start adding it on to your child’s wishlist.
Based on our own experience, this really works!
Somehow, even this young, they understand that the written word has power and feel immediately validated and heard when you add his wish to a list.
It works even better when you add the item to his own list.
No paper and pen to hand (because this is the digital age, right???)?
Whip out your phone instead and take a photo.
It seems to work just as well.
This is a necessary part of any financial education for toddlers.
As I already mentioned, you can’t save your entire salary (well, I suppose your toddler could because you can pay for anything they need but they need to practise, remember?) so you need to teach them all about spending.
How do you start that?
Help them spend.
By that, I don’t mean you should be actively encouraging them to get money out of their jar, going to the shop and then buying something.
BUT, if they do want to buy something, you definitely should help them.
Say, you’re already at the shop and they want something, tell them it costs X amount of pounds and then ask if they have the money with them.
If they don’t and they really want to buy the item, promise to take them back after you get the money.
Then, and this is extremely important, make sure that you do go back to the shop once you have the money.
Don’t blow them off. When you tell them you’re going to do something, make sure you do it or you’ll damage your relationship.
Side Note: This is a completely separate issue so I won’t go into any more detail here (I’ll have to write another post about that and will include the link here once that’s done) but just remember that ultimately, you want to establish trust in your relationship with your child and not doing as you promised can create a massive dent that you might find difficult to fix.
Once you have the money and you’re at the shop, you can show your child the money you have and the price of the item and do a comparison check.
Do they have enough?
If not, is there another item they’d prefer to buy now or would they rather take the money back home and save a little bit more so they can buy what they really want?
This is a great way to teach your child key values like patience and prioritisation.
Another Side Note: Obviously, there are many ways to do this but what my husband and I do is to make sure that our son already has 10% of his allowance deposited into his savings account, another 10% goes to charity, another 10% to a jar at home earmarked for investment and the remaining 70% he can use on books, toys, chocolates or sweets (whichever one he wants).
Play a game.
According to Playful Parenting, “play is children’s way of exploring the world, communicating deep feelings, getting close to those they care abobut, working through stressful situations, and simply blowing off steam…through play, we join our kids in their world.“
So, what better way to teach money skills to preverbal children than to engage them in play? In fact, if you want the lesson to really sink in, you’ll have to think of fun ways to teach money anyway.
Join your kids when they’re playing house or pretend shop.
Pretend to be a customer who needs to pay for a product or service and let your child be the cashier. Then switch roles.
Use real money or realistic play money whilst completing the transaction.
This game emphasises the fact that goods and services are not free.
You need money to enjoy them.
At the same time, it familiarises them with your local currency, the act of checking to make sure you have enough money to complete a transaction and the necessity of this transaction.
And you don’t even need to go on a 5-minute lecture.
Introduce the concept of credit and debit cards.
If your child is already (minimally) involved with budgeting, shopping, spending etc, then she’d probably have noticed that you don’t normally pay with cash, you use a card.
At least, that’s true for our family. 🙂
She must have seen you go to the ATM to get money out or use a debit or credit card to buy something at the shop.
How can you help such a young child make the connection that these cards represent money?
You could try the following:
- ✦ Always (or at least, often) take your child with you when you go to the bank. Allow them to witness your financial transcations but letting them see you put money in your account will be especially helpful.
- ✦ Let your child see you review credit card and bank statements – and let them see the statements too.
- ✦ If you’re getting money out of the ATM machine (and it’s safe around you because you know, safety first!), you can let your child count the money that comes out of the machine. You can then review the receipt together.
And there you have it, folks – the ultimate guide to the best financial education for toddlers!
To sum up, this is what you need to do.
Show your toddler – in black and white – what the numbers say and whilst they may not completely grasp the intricacies of budgeting and personal finance, they’ll begin to understand a few basic principles that will actually be necessary when they grow up:
1. Money is a necessary and therefore, a very important part of life.
2. Most things we want and need in this life require money. That includes toys, chocolates or sweets.
3. The money that come in (ie.: income) is finite and must be carefully managed. In other words, you don’t spend 100% of your income.
4. No less than 10% of all our income must be paid to ourselves first.
5. 10% must go to charity.
6. 10% must be invested so that your money continues to grow on its own – on top of any amount you earn by having a job.
At such a young age, what money skills should toddlers start learning?
What do you think? Did we miss anything?
Share your top tips with us in the comments section below! 🙂
Interesting and very detailed article. I also agree that a child should learn as early as possible– just as no age is too young to teach a child. Learning to save is really important. Thanks for this.
You’re welcome. Thanks for popping by and sharing your thoughts with us. 🙂
Thank you so much for compiling everything and helping us with this post. I am still messy with finance! But learning every day now. Will come back and read again. Thank you.
You’re welcome! I’m glad you found the content helpful. 🙂
My daughter is 5 will soon be 6 years old. I have always wondered when is the right time to start teaching her about money. Now that I have read this post, I feel confident in starting when the time is right. She got a piggy bank for Christmas. So she’s been putting money in it. That’s a start.
That’s a great start. I’m glad you found this post helpful. 🙂
Pinned for later! I’ve been working with my 2 year old on counting so this is fantastic! I love that you’ve incorporated other lessons like need vs want in this as well!
Thanks, Ariana. It can be quite intimidating at first but I find, at least with my own child, that if you can get them to focus, a lot of learning can be accomplished. Do let us know how you get on! 🙂
I’m loving the vibe of your blog. And this topic … excellent. Such an important skillset to teach children. Thank you for addressing this.
Thank you for the kind words, Karletta. We’re glad you like it! 🙂
Hi Jade, great post. Children are never too young to be taught critical life skills like personal financial management and the sooner the better in this “have everything now” world we live in. It is a shame that schools around the world have failed to educate our children in financial matters so it falls to parents to pass on good money habits to their children. Where this practice can potentially go awry is if the parents themselves are poor managers of money because their child has no independent source to provide good financial practices.
Reading topical books to toddlers is always a good start. When my kids were toddlers, two of my favourite books on money and investing were “The Little Red Hen” (reaping the rewards of hard work and investment) and Dr Seuss’ “One Cent, Two Cent, Old Cent, New Cent” (money management).
With hard currency slowly disappearing as we move more fully into the age of electronic banking, I’m curious to know how the parents of today raising the kids of tomorrow are going to be able to demonstrate good money habits that we all learnt through tactile games such as stacking coins, dropping money into a piggybank and playing shop where you gave change to the customer.
You are amazing! I love the resources you’ve just given and the insight you have.
I personally think that even if hard currency as we know it disappears, the values that can be gleaned from such games will remain relevant for a long time.
For example, playing shop doesn’t just teach kids about physical money – though it does do it quite well. It also helps them see – in real life – the concept that you need to pay for most goods and services. Virtually nothing is free.
And this is true whether you’re using a card, an app or a coin. 🙂
Wow, this is a great post. Though lengthy, but saw the article to be an interesting read at first, and then took the time to go through it. You’ve said a lot of amazing things about parent exposing their kids early to money.
I’ve read Robert Kiyosaki’s book on Rich Dad Poor Dad and it’s somewhat similar to this post. Having children to learn about money at early age is something that will incur an excellent financial habits and help them in securing their future against economic downturns in life.
This is one area I know that education will not teach people about money, how to make money. But we as parents should guide them, let them get to know how money works so that when they grow up they will do out rightly well and be financially responsible and independent.
And I love the points you pointed out of what toddlers should start learning like counting, currency, etc.
I think all parents should read this article. It will do us and our kids good in live going forward.
Thank you so much for this.
You’re welcome. I’m glad you like it.
It’s an exhausting read but there are just so many points to cover.
Also, I’m a parent who was in dire need of this kind of information. I couldn’t find any that painted a complete picture so I decided to create it myself. 🙂
Thanks for reminding me of Robert Kiyosaki. I need to read that book again.
You have a wellspring of knowledge in this one article alone. I have made it my point to educate my sons on financial literacy. I add it in our conversations from time to time, so I don’t overwhelm them. It is funny how the conversation your had with your son about the toy sounds like the exact conversation I recently had with my oldest son about two weeks before Christmas. There was a toy he wanted, and I responded just as you did.
But my son is old enough to do chores to earn his money, but we do teach him he has to save up for things even if he has the money on hand. I have learned, from my past mistakes, that you cannot spend all of your money at once. If you spend all of your money, what will you do in the event of an emergency? My dad is more financially literate than my mom, but he has never had a conversation with me about saving or investing. My mom is not financially literate at all, and now she is paying for it. I made a vow that I will break that cycle. And I lead by example in order to do that. A child’s first teacher is their mother.
That’s amazing! It’s great, isn’t it, when you can have an actual conversation with your child about these things?
Like you, I have learned from my past mistakes and also came to the same conclusion. My child will be more financially literate than my husband and I combined (although since neither of us was financially literate until recently, that’s not such a high bar to set, really, in the grand scheme of things…but there you go).
Thank you for popping by and sharing your thoughts and experiences. I agree that the child’s first teacher on finance is their primary caregiver. 🙂
Interesting article. I think parents are often idealistic when their children are so young, and that’s understandable. I think for idealistic parents it can be especially difficult to start opening up the real world of financial distress to their young ones. Yet you have really important points here, about investment and how much better off kids would be down the line if we were open with them. Very much makes me wish I knew the value of money when i was younger
Thank you, Sonia.
Yes, it’s natural to want to protect our children from the often stressful world of finance but I think in this time of economic upheaval, it’s best that they’re ready for what the world could and most likely will one day throw at them.
I believe that sink or swim is not a good tactic when it comes to teaching children about money. At least, not unless you start young so that you can still bail them out if they make mistakes.
Losing £10 is a lot easier to remedy than losing £1M.
And if the former happens often enough when they’re young, children will soon learn what to do and what not to do. If they’ve not experienced the sting or impact of financial loss before (and £10 is a significant financial loss to a child), the likelihood of them losing a huge amount of money in the future increases.
Thanks a lot for such an amazing review about the best Financial Education for toddlers and explanation are given.
I have a 4 year old who is starting to figure out what the money is. Although he is quite small, I was still trying to teach him a little financial education, which he can understand at his age, although it was very difficult for me, after reading this article it is easier for me to explain these things.
Thanks again for this post. If you don’t mind, I will share this article on my social media account. Good luck!
You’re welcome. I’m so happy you find this post useful. Good luck and enjoy the process! 🙂
This is a very long post, packed with a lot of information though. I really need to bookmark it, can’t finish it in one go. After reading just your title of the post, 1st question in my head is, can a toddler really learn about financial literacy? Well, you answer the question afterwards. I think you are right, to teach your kids about the subject, the parents must be financially literate, otherwise how can they learn?
I like the point you mentioned about allowance, practical is needed. It would be best if they know how to differentiate between assets and liabilities as taught by Robert Kiyosaki, then parents would be relieved about kids wanting to buy toys when going shopping 🙂
Yes, a very long post – nearly 7k words ha ha And I’ve had to cut it so that it doesn’t become too unwieldy.
Next month, I’ll be publishing a post on the financial resources available to parents and their children so stay tuned (it’ll be another lengthy post though because it’s a massive topic).
Hint: Robert Kiyosaki will definitely be there. 🙂
Hello Jade, this is a good website with quality content, very high quality!
I never thought anyone would write about how to teach financial to babies. Because to be honest, I feel they will learn it by themselves. However, after reading the data that you provide, I see that it is very true that finance must be taught to your child as soon as possible.
I also have a 2-year-old baby, but every time he asks for a toy that I can’t afford, I just say no and he himself doesn’t have savings (like your child). But, after I think and realize this, I will teach him the same thing too.
In addition, because of your writing, suddenly popped in my mind about teaching finance based on examples. How do I set an example for him so he can think of ways to make money? And, since when should baby start learning to make money?
That’s what I thought too – until recently.
The truth is though because schools don’t teach anything about finance, it falls to us as parents to make sure that they form correct money habits and this can only come about if they have the basic money skills down pat.
They need to know as early as possible what to do with any money they get so that when they’re getting the big amounts, they won’t deviate. And let’s face it, babies are so cute, they get *a lot of* money just for smiling. lol
As for your questions, I think babies should start learning money as soon as they start showing an interest in numbers. At some point, you’ll notice that they start counting. That is, as I mentioned in the post, a major skill upon which all numeracy skills rest.
That’s when you start – when you start teaching your child how to count.
As for financial education for yourself, start with the book The Richest Man in Babylon, which I referenced in the post too. It’s a game-changing gem of a book recommended by so many successful people.
Hey Jade, Thank you for writing the Ultimate Guide To The Best Financial Education For Toddlers. I enjoy your article while reading. I found one this very important for all to teach their child about money as early as possible.
You have done a great job for parents to guide their children about money. The best way to start teaching young children about money is to start becoming more financially responsible yourself. And then involve them in the process.
I learn many new things from your article like we start off simple and easy because if you make it too complicated, your child will either lose interest or flat our refuse to learn.
Thank you for your awesome guide. I am very thankful to you and also share with my friends and other to grow up their children with financial education.
Thank you for your kind words, Parveen, and you’re welcome.
It’s been proven that children have a great capacity for learning and the only thing we need to do is to teach them.
Because schools don’t really teach much about finances if at all, the onus falls on the parents to give the correct information so that children form excellent money habits when they become adults.
And the best way to do that, as you say, is to become financially responsible ourselves.
This is a great post. I personally believe that our economy is a mess simply because formal education doesn’t teach about money, formal education teaches how to work for money not how to have our money working for us, and that’s the big problem. I believe with the information contained in this post every parent would give a better future to his children if he simply apply them
Thanks, Randy. I suspect you’re right. It really should become part of the core curriculum because it’s a major life skill. As it says in The Richest Man in Babylon, the wealth of a society can be determined from the wealth of its citizens. 🙂
hello there, thanks for this awesome article it would be of great help to the public as it has been of help to me. i must say that you have done a great job on this article as it is it very interesting and also informative as teach our children about money and also setting a good investment plan for your toddler is very important as I would expose to the system early and make their future more promising.
Exactly! Thanks for sharing your thoughts with us. I’m glad you like it. 🙂
hello, i really want to first appreciate your effort in putting this great website together and writing this article. i learnt to manage money right from a very tender age and so i try to inculcate that habit in my son, thanks for sharing your experience i believe i can learn some thing from this post
You’re welcome, Benny. Glad you like it. 🙂