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  1. Teaching Financial Literacy to Kids: Introduction
  2. Teaching Financial Literacy to Kids: What Is Money?
  3. Teaching Financial Literacy to Kids: Earning Money
  4. Teaching Financial Literacy to Kids: Goods And Services
  5. Teaching Financial Literacy to Kids: Needs And Wants
  6. Teaching Financial Literacy to Kids: Spending Choices
  7. Teaching Financial Literacy to Kids: Saving for Short-Term Goals
  8. Teaching Financial Literacy to Kids: Saving Accounts
  9. Teaching Financial Literacy to Kids: Conclusion

Just like everyone, kids have to make choices every day: what to wear, what to play at recess, which bedtime story to read. Each day is filled with options, and even very young children are capable of making simple decisions. If children are encouraged to make choices now, it will be easier for them to make decisions as they get older because they’ll have experience and confidence. 
Very young children can analyze and make a choice between two options – for example: "Would you like chocolate or vanilla ice cream?" or "You have $2 to spend at the toy store. Would you like the toy frog or the toy lion?" Even though these choices are relatively easy, making these simple decisions is great practice for little kids. (For related reading, see 3 Ways to Slow Down Your Personal Spending.)

Choosing Between Needs and Wants

Part of making good spending choices is being aware of the difference between needs and wants. Explain to your child that it’s your job to take care of his or her needs – the adults in the household will always pay for things like nutritious food and housing. After all the needs are paid for, the family might have some money left over for wants. Since most people usually have more wants than they can afford, everyone has to make choices and decide what they really want the most. Kids can learn at an early age that:

  • Money is limited.
  • People have to make spending choices. 

As kids get older, they may have more and more wants. Start a conversation with older kids by asking them to make a list or name some things they would like to have. The list, which could be quite long, might include things like:

  • a bicycle
  • board games
  • a skateboard
  • candy
  • electronics
  • music
  • stuffed animals
  • toys
  • video games 

Discuss that some of the wants on the list cost less money, such as the candy; other things, like the bike, are more expensive. Explain that people have to sometimes choose between buying several inexpensive items or one expensive item.
Ask your child to choose the one item that’s most important. Chances are, this will be very difficult since he or she may really want everything on the list. To help your child make a choice, ask him or her to think about each item, listing reasons to buy each and reasons not to buy each. If deciding about a video game, for example, your child might come up with something like:

  • Reasons to buy – my friends have it; it looks like fun.
  • Reasons not to buy – I can play it at my friend’s house; I have a lot of video games already; it costs a lot of money. 

Help your child eliminate some of the wants from the list by using this process, until the list is down to a manageable number of items. Kids tend to make the best choices if their own money is on the line. Even if they are only expected to make a small contribution toward the purchase, knowing they have to spend some of their own money might make it easier to make a choice. 

The Questions to Ask

You can encourage good spending choices by letting your child hear you ask questions such as, "Do I need to buy this now? Would this cost less somewhere else? Can I borrow this from the library or from a friend?" You can also include your child in some of your small spending decisions. At the grocery store, for example, you might explain why you chose one brand over another. You could say, "This cereal is $4.00 and this one is only $3.00. They both look the same. Which one do you think we should buy?"
If your child knows that you are putting a lot of thought into each spending choice, he or she may be more likely to do the same. If your child is using his or her own money, you can help with evaluating the choices, but (within reason) leave the decision up to your child.

Teaching Financial Literacy to Kids: Saving for Short-Term Goals
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