Therapeutic Approaches to Teaching Your Child About Finances [Tools for Different Age Ranges]

The Importance of Early Childhood Financial Experiences

If you reflect on the people and experiences that most shaped your financial beliefs, financial feelings, and financial behaviors, you are probably recalling your parents or guardians and your childhood. You may (consciously or subconsciously) replicate your parents’ or guardians’ financial behaviors, or you may (again, consciously or subconsciously) strive to engage in entirely different financial behaviors than they did. The importance of early childhood experiences is indisputable. Your understanding of the world, including your understanding of money and the economy, is for better or worse shaped in so many ways by your upbringing.

Parenting Children on Money

Young children are very, very observant. Before children understand the concept of money or can even count to ten, they are absorbing financial messages by observing your financial behaviors. These observations will begin to formulate their future financial beliefs (or ‘money scripts’) and ultimately their future financial behaviors. You may not even realize that you are sending financial messages, as these financial behaviors can seem quiet ordinary to you. Consider the financial messages you are relaying when your child notices…

• How often you say yes or no when they ask for toys, clothes, money, etc.

• How frequently you eat at restaurants or order takeout

• If you buy clothes, phones, cars, etc. new or used

• How you react when they break a toy

• How you talk about money

Make sure that your financial behaviors align with the financial messages you would like your child to receive. Children also listen. Your words are powerful and can stay with your child for years to come. They hear you say…

• “We cannot afford that.”

• “That is too expensive.”

• “Whatever you want.”

Again, pay attention to your choice of words to ensure that you are communicating the financial messages that are important to you.

Teaching Young Children (Ages 0 to 6) About Finances

Concrete Learning and Learning Through Play

While many people argue that the future is cashless and that we will exclusively be using digital currency, cash is a very tangible way to teach your child about money, and teaching children concretely is the first step towards teaching children abstractly. Beginning with the concrete and then moving to the abstract is one of the foundations of Montessori education. Additionally, cash is not yet obsolete. In 2023, 20% of Americans still used cash (that’s approximately 67 million people!) and nearly 80% of Americans held cash on themselves at any given time. So find some pennies, nickels, dimes and a piggy bank (or a dinosaur bank or a shark bank or mason jars so children can see the money accumulate over time - the options are endless now) and get started!

Old school piggy banks still work! Piggy banks are a great way for children to begin to understand concepts, such as saving, accumulation, interest (you can contribute into their piggy bank to simulate interest), etc.

Engaging your young child in imaginary play is another great way to teach your child about money at a young age. Consider role playing cashier at the grocery store or server at a restaurant, which can teach children about decision making, tipping, exchange transactions, etc.

Delayed Gratification

In the era of short attention spans and instant gratification, teaching your child about delayed gratification is a helpful skill. Short attention spans and instant gratification can lead to accumulation of unused goods as well as over-spending. If your child wants a toy right now, try…

• Asking…

  • “Why do you want this toy?”

  • “What makes you excited about this toy?”

  • “We cannot buy all the toys, so if we buy this truck, we cannot buy the ball or the doll. How do you feel about that? What do you think about that?”

  • “The toy you want costs $20. We can save $5 each week in your piggy bank, so you can buy it in 4 weeks. Do you want to save money to buy this toy?”

    • Check in each week. “This week, you have $10 for the toy. Are you still interested in the toy?”

• Creating…

  • A visual list of the toys your child wants. Take a picture of your child with their toy and tell them that you will send the pictures to grandma and grandpa or Santa, so they can receive the toy as a gift. They are learning delayed gratification, and you have a great birthday gift list!

Provide Meaning and Understanding

Children start noticing differences, such as race and gender, and comparing as young as three years old. You have the opportunity to help them make sense of these differences and comparisons. They may begin to notice that their friends have more or fewer toys than they do or that their friends live in a bigger or smaller home. Over time, a child may think “we are poor, because we have a small house” or “I have more toys, so I am better than my friend”. Instead of allowing your children to draw their own unfounded assumptions, you can help them to make meaning by emphasizing that all people and families are different - not better or worse, just different. Provide meaning…

• “We buy clothes used, because it is important to us to take care of the environment. Some people take care of the environment in other ways.”

• “This home is just right for our family. We did not want a big house like Joey’s house, because it is a lot to take care of. We like our cozy home. Joey’s house is just right for their family.”

• “We drive a new car, because we wanted the extra safety features. I was in a car accident when I was your age, so safety has always been a priority to me. Everyone has different priorities.”

Providing meaning also teaches your child that there are reasons behind the decisions that you make and that you prioritize spending money on your values.

Teaching Middle Aged Children (Ages 7 to 12) About Finances

Experiential Learning

As your children enter elementary and middle school, they already have a foundational understanding of money. Get creative and start to engage them in experiential learning. For example…

• Visit the bank together and help them open a savings account. The feeling of walking into a bank is much different than opening a bank account online and will leave a lasting impression on your child.

• Encourage them to have their own garage sale. A garage sale will teach them a number of skills, such as marketing, pricing goods, negotiating prices, and interacting with customers.

• Offer them a loan with a low interest rate for a large purchase, such as a bike. While some may argue that instead of offering your child a loan you should teach them how to save, accessing various lines of credit, such as student loans, credit cards, and mortgages, is a part of adulthood. By providing them a loan and educating them on interest rates and on time payments, they can learn how credit works as well as the pros and cons of accessing credit.

Allowance Alternatives

Many parents do not want to simply give their child an allowance. After all, adults have to earn their money through work, so shouldn’t children have to do the same? Other parents do not want to give their children an allowance for cleaning the bathroom or vacuuming the living room, as these are household responsibilities that every family member must partake in. After all, adults do not earn money for making their bed, so why should children? If you would like to structure allowance differently and are not sure how to, consider these alternatives…

• Earning Through Learning

  • Create a book, podcast, and \ or documentary list on important subjects (personal finance, self-esteem, physical health and nutrition, boundary setting, etc.). Once your child has read, listened to, or watched one of the items and had a discussion with you about the content, they earn a predetermined amount of money.

    • For book ideas, check out the Consumer Financial Protection Bureau’s Money As You Grow Bookshelf that has books and parent reading guides in English and Spanish for children ages 3 and up.

  • Pay your child 1 penny, nickel or dime for each page of a book they read or 1 dollar for each chapter they read.

Managing Money: Allowance

Once your child has received an allowance or earned money through their garage sale, help them to manage their money. You can teach them how to break down their money into the following categories: save, spend, invest, donate, expenses.

Teach them to prioritize saving money to ensure future financial safety and security. If they are not financial safe and secure, it will be difficult to help others and spending will be riddled with guilt and stress. Then teach them to pay for their expenses and any debts (perhaps the loan you gave them for the bicycle). Finally, you can talk through how they would like to spend, invest, and donate their money.

Donating, or giving, money looks different for everyone. Some people choose to donate to charities, while others give money to family or friends by paying for dinner or through gifts. Regardless of how your child chooses to give, spending money on others increases happiness.

• Check out Samantha Bird Shiloh, who shares how she helps her children to manage their money in each of these categories!

Teaching Teenagers About Finances

Increased Experiential Learning

As your children enter adolescence, you can provide increased experiential learning by involving them in financial decision making. This can be fun for you and your child and can will teach them lifelong lessons! Consider…

• Sharing…

  • Your own financial goals (past or present) and the steps you took to achieve those goals

  • Your decision making process when making financial trade-offs

• Involving…

  • Your child in planning your next vacation! Discuss how much you are willing to spend on a hotel or Airbnb and ask them to help you find a place to stay.

• Supporting…

  • Your child as they start to make their own financial decisions by asking them questions out of curiosity rather than judgement. Seek to understand how and why they made the financial decision they made as well as how they feel about the decision now.

Large Financial Gifts

Some parents give their children large financial gifts, such as buying them a car or paying their college tuition. Other parents choose not to or cannot afford to give their children such large financial gifts. Neither decision is right or wrong. To make the decision that is best for you and your family, explore the pros and cons of both options. For example…

• According to Forbes, children perform better academically when they are responsible for at least some of their tuition.

• According to Gallup, high levels of student loan debt are linked to worse physical health and financial wellbeing than their debt-free peers.

Remember, financial decisions are non-binary! There are always gray areas. For example…

• You buy a new phone for your child. However, they are responsible for buying the phone case, headphones, and charger or paying for a portion of the phone plan.

• You offer to help your child to research and apply to various scholarships using Scholly.

• You offer to pay for your child’s bachelors degree if they pay for and complete their associates degree first.

Finally, help your child to think through major purchases, such as a buying car, by asking about priorities, features, etc. By helping them analyze a major purchase, you are instilling lifelong skills, which will far outlast any car they purchase.

Managing Money: Income

Saving

When your child starts working, help them to set up automatic transfers into a savings account. A standard rule of thumb is 10% into savings; however, since your child is young and does not have any major expenses (housing, food, car payment, student loans, etc.) yet, encourage them to save 25% (or more)!

Retirement

When your child starts working, encourage them to contribute to a Traditional IRA or a Roth IRA. How to encourage your 16 year old to start thinking about and taking care of their 70 year old self?

• Show your child this short video about the power of compound interest.

• Offer to match a certain percentage of your child’s retirement contributions, similar to how employers provide 401k matches. For example, if your child contributes $50 per paycheck into their Roth IRA, you contribute an additional $20 into their Roth IRA.

Your Financial Growth and Wellbeing

Expanding your personal financial knowledge as well as working through your own financial feelings will have a ripple effect on your child’s financial wellness. 

• Consider working with a certified financial therapist who can help you to better understand your own relationship to money and enhance your financial wellness.

• Expand your own financial knowledge by reading…

  • Clever Girl Finance by Bola Sokunbi

  • Made Whole: The Practical Guide to Reaching Your Financial Goals by Tiffany ‘the Budgetnista’ Aliche

Finally, and most importantly, just like (almost) everything with parenting - there is no right or wrong. Trust yourself and strive to be good enough - you’ve got this!