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

By age three, most kids understand that money can be exchanged for something they want. Kids see you pull out your wallet to pay for things such as food, toys, books and the babysitter. Because children are exposed to this frequent exchange of money for stuff, they understand at a very young age that money can be used to buy things they need and want (more on needs and wants later in this tutorial). What they might not understand is what exactly money is and how it ends up in your wallet.

Bartering

Explain to your child that before there was money, people used to barter or trade with each other to pay for the things they needed. Items such as animals, food, seashells and beads were used to barter, and people had to agree on what made a fair trade – how much of one thing could buy how much of another. A dozen eggs, for example, may have bought a loaf of bread, while 10 chickens may have bought a pig.
 
While bartering was effective and allowed people to pay for things they needed, there were some flaws with the system:

  • The items used for bartering weren’t always easy to carry around. Ask your child: "Can you carry a cow or several chickens in your pocket?"
  • The items weren’t always easy to divide. Money must break down into smaller amounts to be useful. Ask: "Is a cow for a loaf of bread a fair trade? How could you trade part of a cow?"
  • The items may have rotted, spoiled, broken or otherwise become worthless. Ask: "How long do eggs last? How much is your bread worth if it’s moldy?" 

Because bartering was difficult, people needed an easier way to buy the things they needed, so gold and silver coins were made. Coins solved many of the problems that came with bartering: coins were easy to carry around, came in various denominations (different coins were worth different amounts) and kept their value over time.

Money 

Point out to your child that money comes in all shapes and sizes and is used to pay for everything. Most countries have two forms of money: Coins that are made from metals and bills that are made from paper. In the U.S., we have a variety of coins and dollar bills, and each is worth a different amount. It’s helpful for children to see all the different coins and bills so they can compare sizes, shapes and colors. Learning the names and values of each coin and bill takes practice. It’s okay to simply explain to very young children that each coin and bill has a special name and is worth a certain amount of money. Older kids can learn the names of coins and the corresponding values:

  • penny = 1 cent
  • nickel = 5 cents
  • dime = 10 cents
  • quarter = 25 cents
  • half-dollar = 50 cents 

Older kids can also be taught that different coins can make the same amount of money. For example, you can make one dollar with:

  • 100 pennies
  • 20 nickels
  • 10 dimes
  • 4 quarters
  • 2 half-dollars
  • 2 quarters + 5 dimes
  • 1 half-dollar + 1 quarter + 5 nickels 

There are a number of money games you can play to help your child learn to recognize the various coins and dollar bills:

  • Give your child a pile of coins so they can sort the different coins into separate piles. Make sure they notice that the coins have different sizes and colors.
  • Once the coins are separated, explain what each type of coin is called and how much it’s worth. It’s helpful to associate the coins with what they could purchase: "This coin is called a quarter. It is worth 25 cents. One quarter could buy a gumball. Ten quarters could buy a box of crayons."
  • Ask older kids (who know the basics of counting) to show you different amounts of money using the coins: "Show me how to make 30 cents" or "Which coins would I use to pay for something that costs 55 cents?"
  • Show your child paper bills of various denominations and allow them to look at each one. Note that, unlike coins, the dollar bills are the same size and shape, but they have different values depending on what is printed on the bills.
  • Ask older kids to show you different ways to make $1.00, $1.50, etc. so they can practice using the coins and bills together.
  • Use coin wrappers to make rolls of coins. Many banks give coin wrappers out for free, or you can buy them at stores that sell office supplies and stationery. Help your child count the correct number of coins for each roll and explain what each is worth.
  • After practicing, allow your kid to count out coins and bills to pay for a small purchase at a store. Keep in mind this may take a while, so it’s more fun for everyone (you, your child, the cashier and other customers) if you plan on going to the store when it won’t be busy.

Other Ways to Pay for Things

While the concept of credit might be a stretch for most little ones, you can explain that people can buy things even if they don’t have coins and dollar bills with them. People also use credit cards, debit cards and checks to pay for things – not to mention mobile payment apps like Apply Pay, PayPal and Venmo. It’s important to help your child understand, however, that credit cards, checks and the like aren’t free money, and that you have to "pay back" the money with real coins and paper bills that you have worked to earn.

 


Teaching Financial Literacy to Kids: Earning Money
Related Articles
  1. Insights

    Are $1 Coins A Better Option Than $1 Bills?

    We look at how much the government could save if it took $1 bills out of circulation.
  2. Tech

    The History Of Money: From Barter To Banknotes

    Money has been a part of human history for at least 3,000 years. Learn how it evolved.
  3. Investing

    10 Things You Probably Didn't Know About The Money In Your Wallet

    Here are some fun and interesting facts about the money that you use on a day-to-day basis.
  4. Insights

    Obama's Scariest Moment? A Trillion-Dollar Question

    "There was this theory…"
  5. Tech

    How Did Bitcoin Gold Prices Perform in 2017?

    Bitcoin gold hasn't been in existence for two full months yet, but it has already drawn attention.
Frequently Asked Questions
  1. Do interest rates increase during a recession?

    Learn why interest rates do not rise in a recession; in fact, the opposite happens. Identify the factors that reduce interest ...
  2. What is the difference between deflation and disinflation?

    Learn what deflation and disinflation are, how supply and demand affect price levels, and the difference between deflation ...
  3. What rights do all common shareholders have?

    Learn what rights all common shareholders have, and understand the remedies that can be taken if those rights are violated ...
  4. What does CHIPS UID mean?

    Learn what CHIPS UID stands for and how it facilitates the transfer of funds as the back-end of the ACH network for both ...
Trading Center