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Kids and Money: Teaching Toddlers

One of the most difficult assignments you have as a parent is likely to be teaching your kids about money [3]. 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 [4].

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 [5] 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.