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Teaching Kids About Money: 4 Age Appropriate Lessons

teaching kids about moneyA major role of parenting should be teaching kids about money. For many reasons, parents drop the ball in this area and raise children who carry an improper understanding of money into college and adulthood. This leads to challenges as the grown children seek employment, earn an income and determine how to manage their financial lives.

What children should learn about money varies depending on their age. A five year old needs to hear different messages from the parents than does a teenager. However, there are three fundamental money lessons that every child needs to learn no matter what the age:

1) to save money for future needs,

2) to spend money wisely and

3) to give generously.

These three principles serve as the foundation upon which other money lessons build.

There are differing opinions about when to start teaching kids about money. Many say kids as young as three can start to learn the basics. In our home, we waited to get serious with money lessons until the age of five. We found that our children understood the concept of giving at an early age but struggled with saving and spending. By the age of five they were better able to grasp those last two concepts and understand their importance.

Teaching Kids About Money at Various Ages

Aside from saving, spending and giving, what should children learn about money and at what ages? Here are the four big lessons we are hoping to impart as we are teaching our kids about money:

Money Lesson #1: Enjoy It (Ages 5-7)

Enjoy it? Really? That’s the first lesson we are teaching kids about money?


Let me ask you a question. Do you enjoy what money brings…what it allows you to purchase? Of course you do. So do I. Where do you think we first learned that? Very early on in life as we watched our parents enjoy their stuff.

Now before you get too carried away here, realize I’m not talking about churning out little hedonistic monsters that seek to gratify every pleasure. We are going to make sure that doesn’t happen in the coming lessons. But there is a fundamental principle here that is most easily learned when the kids are young: money comes to me as a reward for my hard work and it’s not evil to spend it on things that I enjoy.

So how can parents help kids enjoy money? For starters, pay them a commission (allowance) for the work they do around the house. This builds the “work = money” link in their heads. Get really excited whenever you pay them, whether that’s once a week or the moment the task is completed. Talk about the things they want to purchase by looking in catalogs, online or on the shelves while shopping.

Most importantly, don’t crush every attempt they make to spend. Of course parents should set limits. If we didn’t candy would be the only thing they purchased. Give them some flexibility though to buy that $2 bouncy ball, even though you know it’s a cheap rip-off and they will probably lose it inside a day.

This is really tough for money-wise parents but by doing so, you are actually winning on two fronts. You’ve become the awesome parent who lets their kids buy fun stuff and you are letting them experience the “cheap product” and “take care of my stuff” lessons for themselves. That last lesson will prove very valuable later on and they won’t learn it unless you let them experience some purchasing failures.

Money Lesson #2: Delayed Gratification (Ages 8-10)

Delayed gratification is a foreign concept for a 5-7 year old. My kids never got the whole “waiting game” at that age. They wanted to buy stuff, so that’s why we focused on enjoyment for lesson #1.

Plus, they really didn’t understand how much $20 was. Ask a kindergartener what they could buy with $20 and they could say anything from a gumball to a PS3 to a car.

By age 8 however, I saw a pattern begin to develop in that my kids didn’t want to buy everything in sight. I think it’s because I let them purchase a bunch of cheaply made toys early on and they learned plastic breaks easily. Every time it did, I would say something like “That’s the type of toy $3 buys. The more expensive the toy the better it’s made.” I think that message sunk in and by this age they were better able to discern the value of an item.

This allowed me to easily teach the concept of delayed gratification – to postpone or defer the pleasure received from a purchase until some time in the future. Instead of getting everything right now because I have the money to buy that $2 item, I’m going to have to wait. That Nerf pump action assault rifle looks really cool but I’ll need more than $2 to get it.

So I did start to coach them a bit more at ages 8-10 on waiting to buy more expensive things. I would use phrases like, “Why don’t you wait to get something you will enjoy more?” and “I don’t think you should get that item because (then give a reason)…” and “Remember what happened the last time you bought one of those?” These were all designed to teach that pleasure from spending doesn’t have to be immediate. In actuality, we derive more pleasure when we wait.

Money Lesson #3: Setting Goals (Ages 11-13)

This is where it really starts to get rewarding, when you can teach kids about setting big goals for their money. You’ve subtly been doing this on a small level already, as you’ve taught delayed gratification to the 8-10 year old. Now it simply becomes a bigger deal and more formal.

By this time, if your child has been earning money since age 5, they might have quite a bit accumulated in their savings account. They may have never dipped into that to purchase anything, having only used the spending portion of their earnings to buy stuff. “So what am I saving money for?” they may ask. That’s a great time to have a formal goals discussion.

What goals might preteens be thinking about with their money? Probably saving for bigger ticket items like clothes, electronics, or trips/activities with friends. Some might already be thinking about cars or paying for college. Help them figure this out and when they settle on a goal that you approve, get behind it 100%.

Push them to achieve the goal. Keep them on the right track, especially when they are tempted to blow their money on non-goal related items. Help them stay motivated by tracking their progress, perhaps in a computer program. Our oldest daughter has made an Excel pie chart to track where her dollars are going and loves updating it.

If you need help on setting appropriate goals, I devoted a whole post to it here.

Money Lesson #4: Responsibility (Ages 14-18)

We haven’t personally experienced this stage in our house yet, as our oldest will turn 14 next March.

However, having been around teens for my entire professional career as an educator, I know they need to be taught responsibility more than anything else. It’s a wild time in child’s life as hormones are raging, peers are pressuring, and individualism is bursting forth. If parents stop the money training and oversight now they will blow everything they’ve taught thus far.

How are we going to teach responsibility to our teen? For starters, goal setting will continue and be ramped up to a whole new level. The focus here will be on college and what financial role, if any, the child will have for that. Of course, focusing their attention on achieving solid academic grades with the hopes those turn into scholarship money will be a key priority.

Working outside the home at a summer job will ramp up the levels of responsibility. Teens learn what it’s like to work for a real employer and are again reinforced with the “work = money” concept.

If you haven’t already, open a savings and checking account for your child at a local bank. Teach them how to deposit funds, write checks and reconcile a checkbook.

Teens should also be introduced to the process of budgeting. Even though they will still work around the house, we plan to move away from commissions for our teenagers and simply give them a set amount of money based on what we would normally spend for them during the month. With our guidance, they will be responsible for budgeting that money for their expenditures. Once it’s gone, it’s gone.

You certainly want to have the debt/credit card discussion before they run off to college. Kids need to know the dangers of debt and how to use a credit card responsibly. If you plan on getting your child a credit card for college, you may want to do it before that in their later teen years so you can monitor their self-control (or lack thereof) while still under your care.

Lastly, investing is not beyond the scope of a teenagers understanding. We plan to show our daughter how to do that and open up funds in her name when she’s ready.

Don’t Blow Teaching Kids About Money

You may feel inadequate to teach your children about money based on your past failures. Perhaps it’s a perceived lack of knowledge that’s holding you back. Maybe you are too busy.

My advice for parents who may feel this way is short and sweet…Get over it!

Forget about the problems you’ve had in the past and move forward. Start reading and get the basic knowledge you need. Make time to establish this as a priority for your children.

There really can be no excuses. It is the parent’s job to teach kids about money. If you choose to neglect that responsibility, your kids are being set up for big failures and tough financial times ahead.

Questions: What other issues should parents address when they are teaching kids about money? What was the biggest lesson your parents taught you? When did you start teaching your kids to save, spend and give? What other lessons do kids need to learn? Any parents with teens want to chime in and share your experiences?

Image by David Dominic at FreeDigitalPhotos.net

Next Post: How Shopping For Shoes Changed My Financial Life

Prior Post: Richness Breeds Arrogance But There Is A Cure

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  1. Done by Forty says:

    All great takes, Brian. I can see why you’d be a good financial educator for your students. It’s not just about the lesson; we need to assess whether the students are ready for the lesson, too.

    • “…whether the students are ready for the lesson.” That’s true. I’ve noticed a big difference between a 9th grader and an 11th grader in regards to what they are ready and willing to take in. Even though it’s just a difference of two years, the 11th graders are way more into accepting the lessons.

  2. Interesting lessons, and really useful, even though I haven’t got any children yet, I like how you structure into 4 different stages. When I was little the major financial lesson my parents taught me was probably that money didn’t come out of nowhere and it had to be earned, and that way I learned to appreciate the value of money better.

  3. Thanks for sharing that link Therese! Finally, some quality programming on Saturday mornings for kids. 🙂

  4. These are very important lessons. I didn’t get much training from my mother on how to manage money but she was always a very responsible person and I am as well. So at least I got that one.

    • Responsibility really is the ultimate thing kids need to learn anyway. If they have that, the other lessons fall more naturally in place. I’ll bet you didn’t have many issues with setting goals or delayed gratification because of your responsible nature. Thanks for sharing!

  5. My parents thought kids shouldn’t worry about money, so I didn’t get much from that. I probably am the extreme opposite in that I use all kids of stuff to teach money lessons. We have already gotten the concept of cheap might equal more quantity but less quantity. I hope we can continue learning and not have a revolt at some point!

    • Just keep working at it and I don’t think you will have a revolt. We are really starting to see the benefits of our years of work in how our 13 yr. old daughter is handling her money.

  6. I did not get financial lessons from my parents, so I am uber focused on not repeating that mistake with my son. We find money lessons whenever possible, and I absolutely agree that giving is an incredibly important money lesson for kids. This past Christmas Eve, I told my son that he was very fortunate this year to have as much money as he did, and said that I thought he should give money during collection at church and I asked him what he thought was an appropriate amount and he said “Is $10 enough?” I thought I could burst with pride for him.

    • “…giving is an incredibly important money lesson for kids…” Absolutely agree Shannon…and what an awesome testimony about your son! I don’t think it’s a coincidence that giving is the first concept kids pick up. I believe it’s built into our nature and we only need to have a tender heart to tap into it.

  7. Thanks for breaking that down, Brian! And yes, I think how we teach kids about money is super important. While we don’t have kids yet, my youngest sister is 14 years younger. As a kid, I know that we brought her up respecting money and always being smart. For example, she kept her birthday and Christmas money in a bank account, save for maybe $20 that went in her piggy bank. She took good care of her money then and continues to do that now. She’s the only 18 year old I know that has a $1,000 emergency fund and a growing travel fund! She’s starting to invest her money as well. Good financial foundation is a must!

  8. Well, you know I’min agreement with you Brian. 🙂 Teaching kids about money is one of the most important responsibilities we have as parents and one so many of us neglect. I started talking to girls about money when they were 3 at a very basic level. Mostly it was about how we were saving for our trip to Hawaii. So when Lauren asked me for something at the store, I would remind of her trip and tell her we saving for it. I’d ask if swimming with the dolphins was more important to her and it always was. 🙂 When the girls turned 6 that was when they started setting their own save, spend and share goals. Talking about money with the girls has made such a huge difference in their life. We’ve set basic groundwork on credit cards but when they are in high school, I plan to give them a credit card with a low limit. I want them to become comfortably using one responsibly while I can supervise and guide them. Great post, Brian!

    • Thanks Shannon! I like how you make them to process between activities…this or that…which is more important? That really gets them thinking at an early age about what they value.

  9. That’s a pretty reasonable break-down of how kids should learn about money. My kids are going through the age 11-13 setting goal phase right now. They are sooooo close to having enough for an Xbox!

    • And it will be very rewarding for them. I’ll bet they take better care of it knowing it was purchased with their money. No throwing the controlling through the TV when they mess up on a game. 🙂

  10. John S @ Frugal Rules says:

    My parents really didn’t teach me much at all about money, and we’re committed to handling it differently with our kids. We’re working on the enjoy vs. delay gratification balance with our six year old right now. She’s starting to understand a little, albeit at its very basic level. Our four year old thinks all his money can be used to buy gumballs, so we’ve got a bit of work to go with him. 🙂

    • Haha…My youngest two hit me up for vending machine candy every time we are at the grocery store. There definitely can be some overlap here about what kids learn at various ages. And some will pick up concepts faster than others.

  11. Well I don’t have kids yet but I definitely have come to realize the impact my parent’s views on money and financial lessons have had on my life. Even little comments such as “we can’t afford it” without follow-up explanations, can have a big impact on kids. Kids are then forced to figure out themselves why their family can’t afford certain things, and sometimes it can distort their view of money. It can also lead to an unhealthy view of money, imo.

    • “…”we can’t afford it” without follow-up explanations,” That’s really dangerous when parents fail to communicate the why of an issue. Kids need to hear age appropriate explanations for our money decisions. They really can handle it. Like you said, we don’t want their view of money distorted.

  12. Holly Johnson says:

    I’m currently trying to teach my four-year-old about delayed gratification. She’s got some money and wishes she could spend on it everything!

  13. jefferson @seedebtrun says:

    Good tips, Brian. I have tried to build a solid financial education with my boys. They have savings accounts and our general strategy is to buy them clothes and food and event to pay for fun activities (most of the time).. But if they want video games or toys.. They either wait for a birthday/Christmas,or they save money and buy it themselves. My 10 year old saved up money for a whole year to buy himself an iPod touch at one point! Learning that “delayed gratification” thing is huge.. I know many adults that still don’t have it figured out.

    • My oldest daughter did the “save for an iPod” deal also. That was an awesome experience for her. Best thing was, she chose to purchase a refurbished one. Saved over $100 instead of buying a new one and it works just as well.


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