Kids are perfect mimics. They learn everything by watching you and copying what you do (good and bad). This applies to money, too.
So it follows that the best way to teach kids about money is to let them see how you handle it. It is therefore fundamentally important that you are a positive financial role model for them. If they sense that you are always stressed about money, they will be too. If you are on top of your own finances, this will be a great start for your children.
You can teach your kids about spending and saving from an early age. Take them shopping with you and explain how much things cost. You may allow them to pick out a few things themselves, but set a budget and explain that once they reach the limit, that’s it. There is not an infinite supply of money.
Pocket money is a good chance for kids to learn about the value of money. Even a small amount is a great way to introduce the concept. Explain that money doesn’t come out of nowhere, you need to work for your money. You may want them to also ‘work’ for their pocket money. What you ask them to do will depend on their age. For younger kids, you may ask them to pick up their toys, or help you load the washing into the machine. Older kids may be requested to clean their room or help with the dishes.
If you do give your kids pocket money, have them prepare a savings goal. This may be a book, a toy, a game or anything else they want. Initially, this should be something small that they will be able to afford within a few weeks. If it is going to take too long to afford, they will quickly loose interest. Ensure that they set aside some or all of their pocket money each week towards their goal. They may have a piggy bank at home, or a bank account that they deposit into. Update them regularly so they know how close they are to achieving their goal. Once they reach their goal, take them to buy it and allow them to physically hand over the money, so they understand that it is their purchase.
It is also nice to introduce the concept of charity to children. From a young age, kids can learn that it is important to help others. This can range from giving a few cents to the “doggy” at the supermarket, to putting something under the wishing tree at Christmas, to giving away some of their old clothes or toys. Make sure you explain to them what they are doing and why. The explanation could be as simple as “you are helping other kids who don’t have as much as you”.
There are so many ways to helps kids understand money, the most important thing is to keep it a relaxed and fun experience.