Personal Finance 

Kids and Money: Teaching Toddlers

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One of the most difficult assignments you have as a parent is likely to be teaching your kids about money. The earlier you start, the better. However, teaching toddlers about money can be hard, since money is a largely abstract concept. If you want your children to grow into money savvy adults, though, it can help lay the foundation for good money decisions when they are toddlers.

There are some things that toddlers can understand about money. Many of them do notice that some sort of transaction takes place when you go to the store. It’s a little bit easier to explain money to toddlers when you use cash. On the other hand, though, plastic is likely to be a part of your child’s financial life, so getting him or her used to it is also important. As you begin teaching your toddler about money, here are some ideas for laying a good foundation:

Start Out with a Similar System

When my son was two and three, he loved watching TV. We gave him coupons for good behaviors. Each coupon corresponded to half an hour of TV watching. All of his DVDs were labeled with a number representing how many coupons it took to watch. DVDs with shorter TV episodes took fewer coupons than two-hour movies. He quickly discovered that if he wanted to watch a movie, he had to save up his coupons. We used this to transition him to learning about saving money for goals.

Use Visuals

If you give your child an allowance, you can teach him or her about saving up, and spending, with the help of visuals. We started my son out with different envelopes, labeled for different purposes (he now has different jars). These envelopes helped my son see that money had various purposes. I let him draw pictures on the outside of the envelopes, representing money for church donations, long term savings and short term savings.

Another thing we did was let him decide on a toy, and then show him how many weeks (sometimes with our help) of allowance — after fulfilling his other obligations — it would take to get the toy. A chart he colored in helped him keep track.

Let Them See You Interacting with Money

This is hard to do, since money is so often exchanged electronically. But when I have checks to deposit, I still take my son with me to the bank. I show him that I put money in the bank, and then I can use my debit card to buy things. But I made it clear when my son was a toddler, and I make it clear now, that I have to put money in the bank or my card won’t work. It’s kind of abstract, but it was an explanation that worked for my son. I also let him see me write checks and make donations to our church, and tell him about our savings plan. Having discussions about money and financial goals around your kids, even if they don’t fully understand, can be one way to get them used to the idea of money, and let them grow up hearing that you have a budget.

I’m still not sure how to demonstrate to a toddler the completely electronic transactions that are so often used today, including direct deposit and PayPal, so if you have some good ideas about that, I’d love for you to share them (and other ideas for teaching toddlers about money) in the comments.

{ 9 comments, please add your thoughts now! }

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9 Responses to “Kids and Money: Teaching Toddlers”

  1. skylog says:

    thank you miranda for the article. i do not have children, but i am going to certainly forward this post to a close friend. i think he will appreciate it.

  2. DIY Investor says:

    When eating out give kids a choice between soda and water. If the choose water give them $1 to spend anyway they want. When they want something in the store let them use their own money. They quickly learn the value of saving and what things cost. Put the difference between what you save from not buying soda and buying water into a savings account to help pay for college.

  3. Strebkr says:

    When is a good age to start? I have a 2 year old who knows what “money” is, but he also knows what a stick is and he knows what a tree is. He doesn’t know you can trade money for things any more then you could try to trade a stick for something.

    He knows he keeps his money in a piggy bank, but he doesn’t earn it. If he finds a dime around the house he will put it in. Sometimes he knows I have change in my pocket and asks for it.

    • Miranda says:

      We started the coupon thing with my son when he was 2. It worked well, since it taught him that you can trade something you earn for something you want. We didn’t want him making money decisions at 2, but he could make choices about watching TV and movies. It actually made for a good transition as we started our allowance system and letting him make a few small money choices when he was 4.

  4. financialwizardess says:

    One good way to teach small kids about debit/credit cards is through gift cards they may get as presents. At a youngish age, they can appreciate that the card only is worth so much. I encourage my child to keep track of how much they spend (pretty easy, since they usually spend the whole thing) and then we understand that it doesn’t work anymore. No money on the card. 🙁

    Also, with credit cards, I always stress that I have to pay it back. When my 8 year old goes to spend her cash on stuff, I will sometimes allow her to go over. I have been very lenient so far in charging no interest and giving generous pay-back time, but I stress to her that there IS such a thing as interest and if you borrow $1 from a bank (or heaven forbid a payday loan place!) you have to pay back like $2! Even a youngish child sees that as a bad idea.

    We also include my 8 year old in watching financial shows – especially Til Debt Do Us Part, and man, she gets it. Payday Loans, rent to own, cigarettes, expensive TVs, etc are BAD financial choices. Also, if you don’t communicate about money in your marriage, it will kill it. Great lessons to teach your kids – both through example and watching “educational” shows.

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