Family (Money) Matters: Teaching Children Financial Literacy, Part 1

Unfortunately, the K-12 education system currently does a poor to middling job of teaching financial literacy to students. As a result, the responsibility largely falls on parents, so it is helpful to review some tips and guidelines to help teach children the importance of being financially knowledgeable.

Does anybody doubt the importance of teaching their children about money matters? Probably not, right? Talk to a 25-year-old and they will tell you how they wish they were taught about personal finances in school. However, 62%[1] of parents are “somewhat” or “very” reluctant to discuss finances with their children. Why the reluctance? We’re not sure, but let’s stay positive and explore ways to improve the situation. This month, we will focus on the early age groups.

Ages 3-5

Money buys things. This is the most fundamental financial concept a young child needs to learn. Most things aren’t free. Toys, food, amusement parks. These things cost money. And while the concept of exchanging money for things might seem simple, remember this: in 2022 many transactions are digital and not made with hard currency. This makes it even more vital to teach the concept to children. Swiping a card or pushing a button is the same as handing over bills or coins, even if the transaction feels different.

Money is earned by working. Money doesn’t just magically appear. Money is earned by working. Talk about your job with your kids. Using jobs they recognize, like firefighters or teachers, can also help them understand how jobs earn people money.

You might not get everything you want. Delayed gratification is hard enough for adults. Now imagine being a little kid and not getting what you want immediately. Talk about how hard work is required to buy certain items, and sometimes that takes a long time. Focus on the positive—“The more patient you are, the more you’ll appreciate it once you get it”.

Ages 6-10

The difference between necessities and luxuries. As kids grow, they will hopefully become more discerning with the things they want. They develop hobbies and interests, and often times these cost money. But most of the things they want are luxuries, not necessities. A 3-year-old thinks their iPad comes from the iPad fairy and the carton of chocolate milk was created in the refrigerator. An 8-year-old should know that both items cost money, both items were created through the hard work of others, and one item is a luxury and the other is a necessity.

Trade-offs exist. Do you want groceries or a new videogame? Kids need to know that you sometimes cannot have both, and tough choices need to be made.

Compare prices. We are lucky enough to live in an era with an extraordinary variety of goods and services, so teach your children to compare prices of the items they want. And with online shopping, it’s easier than ever.

With younger children, start with the basics. The value of a dollar. The value of hard work. The value of delayed gratification. We suspect that many parents don’t teach financial literacy to their kids because it reveals the parents’ own anxiety about money. Or they feel as if teaching young kids about money might diminish their kids’ care-free childhood and don’t want their kids to grow up too fast. These are perfectly reasonable concerns but shouldn’t sacrifice the teaching of vital financial knowledge. Money matters are important to teach but can be taught in a positive way. Next month, we’ll explore how older children can be raised to be financially literate.



Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.

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