The vast majority of kids finance materials out there address how to teach your teens or tweens about money. The odd piece might address how to teach your 8-10 year old.

Here at Freedom 101 we strongly believe in starting much, much earlier – because finance isn’t just about money, it’s about developing strong life skills that form the foundation of our kids future ability to manage money.

The type of skills that will allow them to control their money, rather than it controlling them.

Kids financial literacy is a topic that I am particularly passionate about. So much so, that I have spent hundreds of hours researching child psychology, educational philosophies, brain function and cognitive growth, as well as habit formation. All in order to provide my own children with the optimal learning opportunities and graduated exposure when it comes to money.

From everything I’ve learned through both my research and application of various techniques and approaches, I decided to put together this 4 part handbook to give parents a framework of where to focus when teaching their 0-13 year olds about finance, as well as practical real world suggestions on how to put these concepts into play.

First off – teaching our kids about finance does NOT mean detailing every aspect of our own financial situation, experiences, or lessons, to our 3 year olds. Embroiling them in the minutia of our financial circumstances, good or bad, is not what we are shooting for here. But providing them with age appropriate and graduated exposure to money, along with opportunities to build the supporting life skills, most definitely is.

But, it can be tricky to decide when and how to teach our kids about money. We all know we want to do it – that it’s a necessary life skill for our kids to develop, AND that we are the most influential people in their lives when it comes to modelling good money behaviour. But where and how to start can create procrastinators out of even the most financially savvy parents. It can be a topic riddled with questions and self-doubt (Oh wait – that’s all of parenting.)

What’s too much information for them to handle? Am I challenging them enough? Are they too young to understand the concepts I’m trying to convey? Am I robbing them of their childhood by introducing the topic of money too soon?

Like most things in the parenting universe – each of us know our children best. As much as we all tend to question our abilities at times, intuitively we know where they are at developmentally and what they can handle. But, it never hurts to have a guideline from which we can select an array of tools. Tools that we can then tailor to our own child’s individual knowledge level, skills, abilities AND maturity.

This is exactly that – a toolbox. Not a playbook that you or your child should feel the need to adhere to 100%. Rather some ideas to help you form a plan to take strides in providing your child with the financial literacy skills that will help them build strong habits, foundational life skills and a positive relationship with money.

So lets get started:

0 – 2 Years Old

This is the age where you get to take a total break from worrying about anything finance.  This also happens to be the stage where it feels like you don’t get to take a break in ANY OTHER PARENTING DEPARTMENT, so savour it!

You literally don’t need to teach your child anything about money – except that it’s dirty and we don’t put it in our mouths.

(You guys: Thanks Captain Obvious – Me: You are so welcome. See……what did I tell you……hundreds of hours of research.)

But, the one thing I WOULD suggest introducing at this stage, is patience. That may seem weird for a zero year old, but it absolutely can be done. Many parents do it without even realizing it.

When your child is asking for something (verbally or otherwise), hold up your finger and respond, “Just one minute hon, I am just going to _______, then I will ________ (pick you up, give you your drink, hand you your toy etc).”

When they are really little (5-8 months range), make them wait 5 seconds, turn away briefly, then come back to them and provide positive feedback for their patience. Sure, they may not get it to start off with, but you are building neural pathways when it comes to sequencing, which is a fundamental component of our children’s cognition.

Think of it as an “If this than that” algorithm. When something always happens in a certain sequence, children, even infants as young as 2 months old, have the cognitive ability to catch on to that sequence.

Mom/Dad tells me to wait, I wait, then s/he comes back, is super happy I waited, and gives me lots of positive attention. That’s the sequence they are learning.

As they get older, gradually extend those periods of time, and increase the distance you venture away from them, until eventually they are waiting a minute or two, and you are even leaving their sight during that time period.

Developing patience at an early age is super helpful on many fronts, such as decreasing their future separation anxiety (they have already learned and had it consistently reinforced that you come back when you say you will) or from a behavioural perspective (think being able to tell your toddler, “Mommy/Daddy is just on the phone, I’ll be with you in one minute.” AND have them listen? Awesome right?), but it’s also the base building block of being able to WAIT for things and not be a NOW child. A cornerstone skill that will reap dividends when you move on to the concept of delayed gratification.

Raise a patient child and odds are they will ace the old Stanford Marshmallow experiment.

If you missed out on doing this with your child at an early age – don’t despair, you can use this same technique with older children too!

Okay – now you have MASTERED 0-2 years old, let’s move along you rockstar parent you!

2 – 4 Years Old:

This is the age and stage where you can actually start building some amazing financial habits.

Say what?

Yes – it’s true – financial literacy CAN (and should!) start this early. And if you do – it will pay dividends later in life. Big time.

This is the age where we can start helping our children form their understanding of money in it’s most basic sense, establish foundational habits around money, and most importantly, provide the building blocks for essential life skills that will positively support their future money management abilities (along with many other aspects of their lives.)

During these years you can:

• Introduce them to currency, basic denominations, and explain how you earn money;

• Help them create and maintain a wish list;

• Set a precedent that any money they receive (birthday, Christmas etc) gets split between saving, giving and spending (You set the percentages, and don’t expect them to understand the why behind this at this stage, establishing the habit is key);

• Introduce the concept of responsibility and contributing to the family by providing age appropriate chores. Compensate them with a non-monetary reward that THEY get to manage entirely;

• Start an investment account and talk to them about it (they will not understand this yet – but it starts dialogue and habits that will be built upon in future years.)

• If they have older siblings, have them attend family meetings (as long as they want to – don’t force them to sit, but if they’re curious – include them!)

So now we have a quick easy to reference check list, let’s break this down a little further, along with some practical suggestions on how to put this into play.

Introducing Them To Money

This is an easy one. Show them bills, show them coins. Teach them the denominations. If you don’t want them touching real money, there are plenty of fake options out there so they can handle it, engage in pretend play with it, and learn to store it safely.

This is a great opportunity to explain where money comes from, and how we trade our time/effort in exchange for money to buy things we need (food etc). Keep it simple – but it’s a great platform to explain why you, your partner, or both go to work each week. (Or, if you’ve reached FF, why you don’t have to work anymore!)

This type of basic dialogue will naturally transition into play around the exchange of money, as well as your child “going to work”, and at this age, play is fertile ground for learning.

The Wish List

Help your child create a special wish list. Whether it’s a notebook that you help them sparkle or sticker up the cover, or a single piece of construction paper that you keep in a special frame in their room, make it something fun and easy to reference/add too.

Teach them that if they want something, put it on their very own wish list. New toy – wish list. Going to watch a new movie – wish list. Even a special candy at the store – wish list.

Write it down for them (consistently, and until they are able to do it themselves later on), and help them refer to it when they have the resources to buy something or when people are asking what they want for birthday’s, Christmas etc.

If it’s a “thing”, such as a new toy etc,  I like to ensure it has been on my kids wish list for at LEAST a few weeks before they buy it, even if they have the resources to do so right away. This avoids developing a habit of impulse purchases, fad toys, and overall wasted money.

If it’s something simple like they want candy at the store, put it on their wish list, and then next time you are planning a trip to the grocery store, revisit it with them. If they still want to purchase it, help them count out the necessary money from their spending jar and bring it with them. Again – avoiding impulse purchases, and necessitating planning, forethought and discussion is the goal here.

(We have been known to let our oldest experience the disappointment of a wasted impulse purchase from time to time, and this can prove exceptionally memorable for some kids, but setting a precedent that we think about our purchases and make them intentionally is our go to approach at a young age.)

Saving – Giving – Spending

Set a percentage for each of these categories, and consistently apply it to all money your child receives. By setting these precedents early, it will establish a habit that they will be less likely to buck later. By all means explain to them where their money is going – and make it fun, but set the amounts and be consistent!

If they receive a $50 bill for Christmas, take them to the bank and have it exchanged for denominations that work for your percentage break-down (70-20-10% etc). Have your child divide the money into separate piggy-banks, jars, or even better – put their savings portion directly into an interest earning bank account. Many banks offer free savings accounts for children, with a least somewhat of an interest rate. Yes it’s a negligible rate, but it provides a platform for future discussion.

When it comes to the giving – you don’t have to go into a ton of detail here. Choose the charity you are going to give to (helping other kids or animals provide great opportunities for kids to engage and/or relate to the recipient(s), helping them develop the skill sets of empathy and gratitude).

Explain to your child the very basic concept behind the charity, and have them help with the donation process as much as possible. If it’s giving to a local food drive, talk about what people might need (asking the local food bank about their needs is a great place to start), and have them help pick out the food and deliver it to the bureau. If it’s donating to local children’s hospital, have them visit the hospital with you in order to make the donation. If it’s donating to an animal shelter, go to the shelter together.

You don’t need to inundate them with the harsh realities of the world, but age appropriate exposure allows them to build perspective and understanding that not everyone has the same life circumstances.

For spending – take them to a store regularly, whether it’s going to a used toy store once a month (where their money will go a WHOLE lot further), getting a treat from the local bakery, or paying for a movie date. With appropriate age limitations, let them use and PART with their “spending” money themselves.

Once the money is spent, revisit your child’s choices with them down the road. Ask them what they think about certain purchases, if they are happy with their decision, or if it was worth the money and why.

By experiencing making spending choices, and subsequently discussing and reflecting on them with you, over time they will slowly develop an understanding of the purchases they get value from, refining where and how they want to spend.

This is also an opportunity to remind them of their wish list (which may mean they decide to refrain from spending now, to save up for something a bit bigger), but it will also provide stellar opportunities to talk about what they want to prioritize. Maybe something on there is old and they no longer want it, or maybe they can wait to ask for some of the item’s/experiences for a birthday or Christmas gift.

This is fertile ground to have conversations about what is important to your child, what they “value”, what they’ll play with/enjoy the most, what experiences vs. things they would rather have. All of these conversations will allow your child to bloom into a mini-consumer genius, with all the pre-requisites for mindful spending, minimalism, and sustainability.

The essential component to all of this is to make it an experience and a (short and simple) conversation. Your focus should be on making it fun, and building a foundation. Your child doesn’t need to understand the finer details, nor will they stick around to listen to long lectures at this stage, but they will LOVE to be involved and able to ask questions along the way.

Most of all – it will be quality time where they have your full attention. That is something that every child absolutely looks forward to and thrives with – no matter the topic.

Chores and Compensation

When it comes to contributing to the household, there are many chores that even a 2 year old can do (albeit with some assistance). Taking their plate to the sink after meals, getting dressed, making their bed (choose comforters/sheets that make it easy for them to make their own bed!), brushing their teeth (definitely some due diligence required by Mom and Dad here), brushing their hair, putting away their toys.

Those are all age appropriate responsibilities. While it’s more work to show them how to do this stuff early, it will also make your life easier once they get the hang of it, and they will be pumped to be helping out.

When it comes to compensation, many people opt for a monetary allowance. For a number of reasons, I am not one of those people. For one, it results in the same process as when they receive gift money, negating an additional opportunity for learning.

My preference is for a non-monetary “currency” that they have full control over how and when to spend (within the rules and needs of your household). This is where the skills of delaying gratification, managing resources and self-discipline start to get planted at a very early age. Generally it is learned very quickly through error, which is part of allowing your kids to experience making mistakes, and a great reason to keep the “currency” non-monetary!

With our oldest son I developed the concept of “WII Dollars” when he had just turned 4. We recently started the basics with our toddler, who is just 26 months old. The approach provides our kids with a set amount of WII dollars (which are coloured poker chips) at a set frequency. (Different colours for each child is recommended!)

For our oldest, it’s 10 WII dollars every 2 weeks, akin to a bi-weekly pay cheque, for our toddler it’s a more age appropriate one per day to start. Our oldest’s son’s WII dollars each represent one hour of screen time, for our youngest, each represents just 15 minutes.

Our oldest gets to spend them however he likes. He has learned over the years how to manage, save, and look ahead in his weeks to plan how he will likely want to spend his WII dollars in a way that brings him the most value (ie: waiting to play with friends after school, or having a set amount he spends on weekends).

Our youngest is in the learning phase, so he pretty much spends his daily dollar immediately, but he is starting to catch on to the process, associating completing his chores with earning the privilege of screen time. Right now, that’s the whole point.

You can take this model and modify it in a way that works for your individual family, but the premise is this:

Non-monetary currency that your children have full and total control over how they spend (within reason, and in a manner that works with your family schedule of course). But do allow them to blow it completely, that’s part of the learning process. Trust me, if the “currency” affords them something they value, they will learn quickly. Astonishingly quickly.

In the immediate, it offers an awesome system for any behaviours or activities where you want to apply limitations, while providing your child with substantial learning opportunities. Down the road, when they do start earning a pay cheque, they will be experienced veterans at looking ahead and planning how to use their resources in a way that maximizes value.

This method also serves as a great way to have consequences for missed chores. I don’t like to have to constantly nag my kids to do their chores, so rather than reminding them all the time or feeling frustrated about it, I put the responsibility on them. If they forget, they lose WII dollars, and consequently, their available screen time. It’s a powerful motivator.

Investing Early

Starting an investment account at this stage is more about having dialogue with them and introducing the concept, as opposed to expecting them to understand compound interest.

Whether you choose to open an RESP and invest within that account (which we recommend in order to take advantage of the government matches), or simply open a basic brokerage account on their behalf, you are setting the stage for future learning/discussions by making saving/investing their money the norm.

The Family Meeting

Making your 2-4 year old sit through a family meeting is probably not going to be very productive unless you keep it brief! Really brief. BUT – if they have an older sibling(s), chances are they are probably going to want to come hang out and be part of it, at least for a minute or two!

This a great way for them to see the ritual in action, how dialogue takes place, and how everyone’s opinion is taken into consideration.

For us, we have a family meeting once every two weeks. We use that time to decide our meal plans, our oldest lets us know about any lunch requests he would like us to consider (old favourites he no longer likes, or new foods he’s discovered and wants to try etc), we review the upcoming weeks schedules so everyones on the same page, decide on our family night activity, and talk about family purchases, vacations, upcoming activities or sports etc.

We also have a family meeting “agenda” handy at all times where anyone in the family can write down a concern, or suggestion they have about any topic. The topic then gets raised at the meeting, with the person who raised it given the opportunity to speak first.

Sometimes this becomes a discussion about planned vacations, the WII dollar system, distribution of spending/giving/saving, selected charities, chores and household responsibilities, or rules that aren’t being adhered to or are no longer working for the family.

Everyone is allowed to express their opinion, in a respectful manner, however at the end of the day, Mike and I retain the executive decision making power. Sometimes we make a decision then and there, sometimes, as necessary, we take the liberty of discussing it between ourselves and commit to getting back with a decision within a set time frame.

This gives the kids the clear message that we want and value their opinions and thoughts, provides a forum for discussion, but also leaves them with a sense of security and stability knowing that as their parents, Mike and I will consider all aspects/impacts on the family as a whole, and make the final decision.

Having a family meeting that aligns with your families values and parenting philosophy can provide stability, structure and open communication for even the busiest family schedules, not to mention a great forum to discuss family financial considerations.

The Takeaway’s

We’ve covered a lot of ground here, but to boil everything down to the most salient points:

• Introduce your kids to finance and help them build their supporting skills early;
• Don’t worry about the finer details, building familiarity with the concepts/habits is a win;
• Focus on making it fun, and allowing simple financial decisions/conversation to facilitate quality time.

Following these guidelines, in a way that works for your family and your child, will help them build the beginnings of a positive relationship with money.

Join us next week when we talk about how you can build on these foundational skills, and provide a framework for teaching your 5-7 year old how to master their money.