As a parent, it’s your responsibility to raise, educate and prepare your child for adulthood. School can only teach so much, but it’s up to you to fill in the gaps. Such as finances.

How do you talk about finances with a child who has no concept of money?

How do you begin to explain saving money, earning money through jobs, or proper money management?

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There are a few tricks and mom hacks to make it a little easier to teach your children about money.

[Related] 10 Amazon Toys That Can Help Kids With Money

My daughter is 5 years old and knows everything.

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She wants everything too, so I’ve been working on her with wants vs needs and explaining finances to her.

She doesn’t need to know everything about money at this age, and I want her to keep some innocence. But I also need her to know that we don’t live a privileged life and can’t afford the hottest toys on market. Nor do we want to buy so many materialistic items only to have them clutter our home.

[Related] The Financial Benefits Of Minimalism

Helping her to realize that we live inside a budget has helped her to spend her money more wisely.

I want her to have the fairy tale life, but realize it takes effort and not just wishing on a star. By helping her to realize that hard work and determination can help her accomplish her goals, she will be at a much better place in life.

So, I’m helping to explain finances to her in a way that helps her with goal setting.

I’m also helping her to learn about stretching her dollar and getting more for the same or less. Or when we go to a store and she wants multiple things, I inform her of the budget.

Instead of multiple tiny things, she often picks the item she wants most.

So here are a few ways to explain finances to a 5-year-old

1. Use a piggy bank that allows them to see the money inside.

I personally love the ones that show the amount of money inside and count the coins as added. It saves so much effort and adds to the fun. You can use the jar as a goal and set a reward once the total reaches a certain point.

2. Inform them of budgets and how much an item cost

If they have a $20 gift card from grandma, tell them the $20 is their budget.

As they add stuff to the cart, keep a vocal tally of the costs so they know how much they are spending and how much is leftover to still spend. You’d be surprised at what they put back and what is kept. After doing this a few times, they get better and can squeeze more from their budgets. –Just like adults.

*Make sure to inform them of deals and sales as you come across them.

My daughter, last year had a $25 gift card to Toys R Us (before it closed.) She wanted to get a lot of stuff but always asked if it was a good deal. She wanted as much as she could get but didn’t want a bunch of cheap knickknacks.  We walked around the store about 3 times before she was satisfied with her cart. A $40 playdough town center marked down to $14. A $5 mystery plush toy that came inside a ball, a container of bubbles $2 and another mystery toy $2. After taxes, she had a few cents leftover on that gift card.

And to this day, she still plays with the playdough town center.

She still plays with the playdough town center a few times a week. She would play with it more if her little brother didn’t keep trying to eat it.

3. Don’t pay your kids an allowance.

You birthed, raised, clothed, fed, and cared for these kids their entire lives. They should be cleaning their room, picking up their toys and helping with minor chores around the house.

Part of being a family is participating in family activities, both good and bad. Fun and work. “Earning your keep” is a phrase that works well to describe this scenario. 

If they do anything extra, like clean the car of trash, pick up dog poop or leaves (examples) then they could earn a commission.

Something that teaches them hard work pays off.

4. Teach them that they can make money

A kid wants a new bike, but the other one is perfectly good? Why should you waste your hard-earned income on this frivolous purchase? 

They can earn money by selling toys, old clothes, lemonade stands, etc. Help them to think of ways to make money on their own. In fact, there are several jobs that kids ages 4+ can get to make their own money!

5. Teach them about credit cards

When those junk mail letters with fake credit cards come in the mail, use them as a teaching experience. Tell them how cash is better a credit card is essentially using the money you don’t have yet and must pay back with interest.

Be prepared to revisit any financial lectures you may give your child.

Two times a year, kids will forget everything you teach them about money. Birthdays and the Holiday Season will bring out the “want.” They want this or they want that.

You can help curve this by offering experiences instead of things. See Birthday freebies for kids or Christmas activities that don’t cost a dime. Both of these can give your child the attention they crave, but at a budget-friendly cost to you.

Saving up to pay for something in cash, saves money and gives a better feeling of accomplishment.

Sign up now and get INSTANT access to Financial Tracker Worksheets. Perfect for helping you budget and save money!

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how to explain finances to a 5 year old. easy things you can do to get your kids to understand money and budgeting without ruining their childhood. easy ways to get them to understand that money doesnt grow on trees.
how to explain finances to a 5 year old. easy things you can do to get your kids to understand money and budgeting without ruining their childhood. easy ways to get them to understand that money doesnt grow on trees.
how to explain finances to a 5 year old. easy things you can do to get your kids to understand money and budgeting without ruining their childhood. easy ways to get them to understand that money doesnt grow on trees.
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