Five- and 6-year-olds are starting to develop the cognitive skills necessary to understand basic monetary concepts, such as identifying coins, figuring out how to count change, and matching small amounts of money to items they want to buy.
Aside from acquainting kids with the basics of economics, money lessons have other benefits. "Money is a stand-in for many of the values we want to teach our children," says Janet Bodnar, author of Dollars & Sense for Kids (Kiplinger Books). "If youngsters learn how to spend wisely and delay gratification, they will develop patience and planning skills in other aspects of their lives."
Personal Finance 101
To increase your child's money smarts, try these strategies:
- Explain how money works. Your child needs to know there's not a little printing press inside every ATM. Explain that the bank is like a big piggy bank where you keep your money until you're ready to use it. Tell her that when you spend what's in your account, it's gone until you get paid by your boss and can put more in. She should understand that you can't buy whatever you want and that you need to make careful choices about how you spend your money.
- Build your child's money skills. Reinforce lessons he's learning at school by making a chart that illustrates basic money equivalents. Post it on the refrigerator or in your child's room. Help him practice exchanging pennies for nickels and dimes and quarters for dollars. Play store by putting price tags on items around the house: 50? for a pencil, 75? for a rubber ball, $2 for a Hot Wheels car. Help your child figure out the cost to "buy" each one. Then hand him two one-dollar bills and explain that he has enough for the pencil and the ball or just the car, but not all three. Let him choose.
- Give your child a small allowance. It should be enough for her to buy minor items, such as trading cards, hair clips, or ice-cream bars. The next time you go shopping, tell your child to bring her money if she thinks she might want to purchase something. What if your child has blown her wad and still begs for ice cream? Tell her she'll have to wait until the next allowance day, Bodnar recommends. "If you give in, you've defeated the purpose."
If your child wants something big, such as a new hardcover book or a toy, help her figure out how much she needs to save each week in order to buy it. Make sure she has a clear plastic bank so she can watch her money grow. However, Dr. Blackburn advises teaching kids to do more with their money than spend it on themselves. She suggests encouraging them to donate part of their allowance to charity.
The majority of experts agree that a child's allowance should not be tied to household chores. "Children should help out around the house because they are part of the family, not because they are being paid," says Irene Leech, Ph.D., an associate professor and extension specialist in consumer education at Virginia Tech University, in Blacksburg.
- Let your child do some spending. When your child wants to make a purchase, help her count out the correct amount. Have her hand the money to the cashier and wait for her change. If your child wants to blow $3 on vending-machine toys instead of waiting to combine it with next week's allowance to buy a Beanie Baby, point out the trade-off but leave the final decision to her. Tracy Barta, of Zionville, Indiana, lets her sons, 9, 7, and 4, spend their allowance as they wish. "But I have veto power if I think an item is inappropriate or too sticky to eat in the car!" she says.
- Offer ways to earn extra cash. Kids need to learn that they can increase the amount of money they have but that they have to work for it. Make a list of jobs your child can do above and beyond her routine chores, such as raking leaves or polishing silver, along with the amount you're willing to pay for the job. Paul Tedder, of Nashua, New Hampshire, says that when his daughter, Meghan, 6, wants to buy something specific, she offers to dust the furniture or wash the car for a fee. "What's scary is when she wants to give me one of her three-dollar haircuts!" Tedder quips.