12 Steps to Teaching Your Toddler Money Sense

Photo by torugatoru

Grasping the concept of money can be difficult for children. They'll learn best by example and experience, starting as soon as they're able to understand the concepts of addition and subtraction. You can then begin teaching them the basic principles of money management and how money can buy the things they enjoy or need. 

Learning the basic concepts of frugal living also will help children make a smoother transition from depend on adults for all their needs to managing their own finances. The following 12 steps can help you start your child on the path to economic independence. 

1. Begin Early
As soon as children can count, teach them to count money. When paying at the register, explain how you're paying and how the amount owed translates to cash in your wallet or money transferred via a credit or debit card.

2. Piggy Bank Savings
Beginning at ages two to four, introduce your child to the basics of saving money with a first piggy bank. Toddlers and preschoolers love inserting coins in the piggy bank slots and this enhances their eye-hand coordination. Once they get the hang of it, make it a weekly practice to sock away coins.

3. Math Skills
Children understand basic math between the ages of four and six so you can begin role-playing games with a toy cash register and money. When they get a bit older, introduce games such as the child's version of monopoly to teach them how money is used to make purchases.

4. Explain Values
Discuss how your child can save their money, how to make it grow and how to spend it wisely. This will teach them the value of money and why they should be careful. 

5. Needs, Wants and Wishes
There's a big difference between purchasing things we need, want and wish for. We need food. We want a new dress. We wish for a big-screen television. Teaching children the difference between these three categories will help them make informed decisions in the future. 

6. Establish Goals
Sit down with your child as soon as they begin to receive an allowance and establish goals for spending and saving. Saving up for a much desired item will teach them the importance of thinking ahead and avoiding impulse buying. Goal setting also helps children learn to become responsible for their money. 

7. Create a Budget
Work with your child to decide how they'll spend their allowance, apportion money for savings, pocket money and perhaps a third category for donations to church, non-profits or natural-disaster support. Setting aside a portion for donations helps children learn about charity and the importance and joy of being selfless.  

8. Set Up a Savings Account
You might seed a child's savings account with enough money to meet the minimum requirement to open an account. They should be present when you open the account and make their own weekly or monthly deposits. You might want to help them make the first few deposits with an account representative in the bank lobby to help them understand their money isn't just disappearing into a drive-through tube or an ATM machine. Because pass books have gone the way of the dinosaurs, help them check their account status online and go over their paper monthly statement.

9. Savings Bonds
U.S. savings bonds are still a good value as they cost one-half their face value and earn interest. In some instances, bonds are tax-free when used to finance college education. Perhaps more importantly, a child can't spend a bond immediately, reinforcing saving and goal-setting lessons.

10. Teachable Moments
Children don't have to sit in a classroom to learn. Teachable moments can happen at any time in any place. When using an ATM, explain money doesn't just magically appear; that you've put money into an account and are simply accessing that money. Show them how coupons, shopping sales and unit-price comparisons allow you to make wise use of your money. Children will better grasp this lesson if they join you in planning economical meals, avoiding waste and using leftovers efficiently.

11. Credit Card Smarts
When you pay for a purchase with a credit card, take the opportunity to explain how credit works. Show your child how to verify the charges and calculate a tip. 

12. Keep It Simple
Don't try to pour too much information into your child's head at one time. Remember that children learn in short bursts and their attention will quickly wander.