Lately, there has been a lot of discussion in blogs and magazines, like Westways, about how young adults aren’t ready to face real world finances. The Simple Dollar recently reviewed a book, Raising Financially Fit Kids, that will help parents teach their children about money at an age-appropriate level. Based on  his review, it looks like a comprehensive guide. However, if you don’t have to time to read a book, I’ve put together a list of things you can do with your child based on his/her age level. I’m not a financial guru, but I am an elementary teacher and I feel I have some insight into when kids are ready to learn about money and at what level. Here are my tips based on age and my experience with children:

  1. Kindergarten – (age 5/6) Kids begin to recognize coins and their denominations.They should be able to count up to a dollar using pennies, nickels, dimes, and quarters. They also recognize dollar bills. This is pretty easy to teach, let your child count coins out of your coin purse or coin jar. Show them the difference between pennies, nickles and dimes. They frequently confuse dimes and nickels, so help them sort by size. They will soon begin to catch on. By the end of Kindergarten, they should be able to count sequentially. Meaning, they can count up from the nickel (5) and add the pennies (6,7,8, etc.).
  2. 1st grade – (age 6/7)You should begin to see quite a bit of math homework focusing on counting coins. Kids will begin to know that 2 quarters is 50 cents; a quarter, dime, and nickel is 40 cents, and so  on. Again, helping them count real coins will make this task much easier for them. This is a great age to encourage them to save money as well.
  3. 2nd grade- (age 7/8) – Continuation of counting coins up to one dollar. They should also begin to recognize a five dollar bill and combine the dollars and cents. So, they should be able to count a five dollar bill, plus a one dollar bill, plus 40 cents in coins: $6.40. If your child is struggling with counting coins, or counting sequentially, I would talk to their teacher about this for additional guidance. Again, allowing your child to play with real money or ‘fake’ manipulative money is very helpful.
  4. 3rd grade – (age 8/9) -Children now can recognize, name, and count the denominations of coins, count up to one dollar using different variations of coins, recognize a five dollar bill. This is a good age to begin counting back change. Their math skills are usually strong enough to handle this task. If your child buys lunch, you might want to give your child a little bit more than required and ask him to bring home the change. They should be able to figure out that if lunch is $1.50, and you give them $2, they will owe you 50 cents. This might take the whole year to teach, but it will be a life-long skill. (Think: How many times have you gone to a fast food place and the cashier can’t count back the change for you? This has happened to me a few times and I always feel bad that the cashier never grasped this skill).
  5. 4th grade- (age 9/10) – Continue with counting back change, this will give them additional support and strengthen their math skills. At this age, you can begin to introduce the idea of budgeting. They should already be saving their money (look at the 1st grade level tip). If they want to buy a new video game, you can tell them it has to come out of their allowance or savings. They need to budget how much they think the game will cost. How much will they have left over? Include them in making shopping lists, helping you figure out a simple bill, or budget for a gift. They are mentally and academically ready to begin understanding the importance of saving and being patient.
  6. 5th grade – (age 10/11) – Continue with counting back change, repetition, repetition, repetition! Also, continue with basic budgeting skills and introduce the idea of ‘borrowing’ or credit. By 5th grade kids are ready to understand that if you borrow money, you have to pay it back with interest. This is a great gate-way to understanding credit cards, which you can introduce by middle school. If your child really wants something, but doesn’t have the money, you can lend them the amount, but at an interest rate. Before lending them the money, sit down with them and show them how much they will have to pay you back. For instance, you lend them $5.00. You give them a low interest rate of 2% APR, they owe you at the end of the month $5.09. They should be able to divide the 2% by 12 months. Then, multiply the .00166 (which rounds to .0017) by the $5.00 they borrowed. By the end of 5th grade they can multiply and divide decimals, so this may be a bit challenging for them if they struggle in math, but they can do it. Let them figure this out with paper and pencil (please don’t use the calculator, yet!) They can check their work with the calculator when they are done.
  7. Middle school (6th – 8th grade)- Continue counting back change, budgeting, saving, and borrowing on credit. By 7th or 8th grade, they should begin to learn about balancing a checkbook. One night, you might want to explain debits and credits and how you add or subtract that amount from what’s already in your bank account. If your child has a savings account, help them balance their books as well. Set a savings goal, talk about how they will meet that goal.
  8. High school (9th – 12th grade)- This is where you need to prepare them for young-adulthood, college, and living on their own. Discuss what bills you pay, what are necessities, what are things you can do without. Talk about where your income comes from, how much you save, and even retirement planning. It’s also okay to be honest with them about your debt, if you have any. Discuss how you’ve made plan to pay it off. If you don’t have debt, talk about why that is. Maybe you’ve always been frugal, always saved money, and how you don’t worry much about your bills.

These tips are obviously very general, every kid is different and you may have to adjust accordingly. The bottom line is that we’ve got to prepare them for adulthood, and unfortunately, from elementary to high school, the math that is taught in the classroom doesn’t cover personal finances. Until it does, parents are going to have to prepare their children themselves.

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