Teaching Kids about Money

As a mother, I have come to realise that one of the most important life lessons we can impart on our children is financial literacy. Picture this: if we consider life as a complex puzzle, then understanding money is like having the corner pieces. They’re not the whole picture, but they give you a place to start and a framework to build upon.

From learning to save their pennies to making decisions about purchases, these early interactions with money are akin to the first steps a baby takes – a little wobbly, a tad uncertain, but absolutely essential. They lay the groundwork for understanding the value of money and its role in our lives.

Research has shown that kids form their money habits by the age of seven. Thus, as parents and caregivers, we’re like the artists, helping shape their ‘money clay’ during these formative years. We can either sculpt it into a tool that they can use effectively throughout their lives, or it can harden into an unwieldy shape that they’ll spend a lifetime trying to understand.

Instilling Good Money Habits in Children

Instilling good money habits in children is akin to teaching them to ride a bike. At first, they’ll need training wheels (our guidance and supervision). With time, however, they’ll learn to balance, pedal and steer their financial bicycles themselves.

1. Start Early: Introduce the concept of money early on. Use everyday situations like grocery shopping as teaching moments. Explain how money is earned and its value in terms of the goods or services it can buy.

2. The Three Jars System: I introduced my son, Tom, to a simple system that consisted of three jars: Save, Spend, and Share. Each time he received money, he’d distribute it among the jars. This helped him understand the importance of saving, the joy of spending wisely, and the fulfillment that comes from sharing.

3. Encourage Earning: When Tom got older, I started giving him opportunities to earn extra money through chores around the house. Like an apprentice learning a trade, this taught him the value of hard work and the direct relationship between effort and reward.

4. Introduce Budgeting: As children grow older, introduce them to the concept of budgeting. When my daughter wanted an expensive art set, we sat down and made a plan. She saved, budgeted, and eventually bought it herself. The pride in her eyes was worth more than any art set!

How Early Experiences with Money Shape Our Financial Future

Our childhood experiences with money are like seeds planted in the fertile soil of our subconscious minds. They sprout roots, grow, and bear fruits in the form of our financial beliefs and behaviors as adults.

If children see money as a source of stress, they may grow into adults who avoid financial decisions. Conversely, if they see money positively, as a tool to achieve their dreams, they’re likely to develop a proactive and confident approach to personal finance.

As parents, we’re the gardeners, nurturing these seeds. Our job is to provide a healthy environment of open dialogue about money, model positive financial behaviors, and guide them through their initial money experiences. In doing so, we can help them cultivate a healthy ‘money tree’ that will continue to bear fruit throughout their lives.

Teaching kids about money isn’t just about cents and dollars. It’s about imparting values like patience, responsibility, and generosity. It’s about equipping them with the skills they need to navigate the financial seas of adulthood. And most importantly, it’s about setting them up for a lifetime.

Introducing the Concept of Investing and Wealth Creation

Now that we have the basics covered, it’s time to introduce our children to the world of investing and wealth creation. Think of it as teaching them to sail. Initially, we were learning how to swim (basic financial literacy), but now, it’s time to navigate the vast financial ocean.

1. Talk About Investments: Start with simple concepts like how money can grow over time if invested wisely. For my kids, I equated investing to their favorite video game where they ‘level up’ their characters over time. Similarly, money ‘levels up’ or grows when invested.

2. The Power of Compound Interest: The concept of compound interest is a game-changer in understanding how wealth grows. I illustrated this to my children using a simple table that shows how a small amount, when saved consistently, can grow significantly over time due to compound interest.

YearAmount Saved Per YearInterest RateTotal Amount

This table was a powerful visual aid that really drove home the concept of how money grows over time.

The Psychology Behind Money and Kids

Behind every financial decision, there lies a network of psychological factors at play. In children, these factors are still pliable, and by understanding them, we can better guide our children to make positive financial decisions.

1. Delayed Gratification: The famous ‘Marshmallow Test’ conducted by psychologist Walter Mischel revealed that children who could delay gratification had better life outcomes. By encouraging saving over immediate spending, we nurture this ability in our kids.

2. Money and Self-Esteem: Our relationship with money is closely tied to our self-esteem. When children earn and manage their money, they develop a sense of independence and confidence.

3. Money as a Tool, Not a Goal: It’s important to teach children to view money as a tool to achieve their goals, not a goal in itself. Money can provide for a comfortable life, fund a passion project, or help others. By aligning money with their values, we can ensure they develop a healthy relationship with it.

By exploring the psychological aspects of money, we’re not just raising financially literate kids, we’re nurturing emotionally intelligent individuals. This holistic approach to teaching kids about money goes beyond mere financial skills. It’s about preparing them for the journey of life, where money is a travel companion, not the destination.


  • Lily Kensington

    Lily Kensington is a financial psychologist, a proud member of the ANZA Psychological Society, and a passionate advocate for financial wellness. A former high school English teacher and psychology graduate, Lily brings a unique perspective to her writing that blends the intricacies of psychology with the world of finance.Over the past decade, Lily has dedicated her life to helping individuals and couples navigate their emotional relationship with money. Her empathetic and intuitive approach, honed through her counselling practice, breaks down complex financial concepts into relatable and practical advice. Lily's writing often reflects her personal journey as a single mother, providing valuable insights and support for fellow single parents navigating the world of personal finance.In addition to her numerous contributions to wellness and personal development blogs, Lily is the author of the book "The Heart of Money: A Psychological Guide to Financial Wellness."In front of the camera or behind the pen, Lily's mission remains the same: to help others achieve financial peace by understanding the psychology of money.

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2 thoughts on “Teaching Kids about Money”

  1. I don’t believe in teaching children about money at all until they’re old enough to decide if they want to participate in capitalism


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