How to teach young kids about money

Money expert Clark Howard feels so strongly about the importance of teaching kids the value of money that he wrote an entire book about it.

While we highly recommend reading the book if your have children in your life, here are some key takeaways that can help you get started educating kids about finances.

Clark Howard’s tips for teaching younger kids how to handle money

“Too many children still think, as the old saying goes, that money grows on trees,” Clark writes in the book. “And we, as parents, grandparents, aunts and uncles, help create that impression by showering them with more and more stuff than any generation has ever had.”

How young can you start teaching kids to handle money? Clark says the time they start to learn to add and subtract is a great starting point.

“Teaching young children about money produces a trifecta of benefits,” he says. “It helps them in school, it helps them with values, and it helps you save money.”

At first, this may mean explaining to your child why you need to say “no” when they ask you to buy them something. Soon enough, you can really hammer the lessons home by giving them an allowance and letting them manage their own money.

Set up a Clark Smart allowance plan

Clark says you should start giving your child an allowance as soon as they are old enough to understand chores — usually sometime around first grade.

The concept behind Clark’s allowance plan is to give children a basic set of responsibilities and a basic allowance that increases as they get older. He also loves the idea of giving bonus money for doing extra chores, just as you might get a bonus at work for going above and beyond.

Clark likes to give $1 a week in allowance per grade level for basic chores and $0.25 to $2.00 more for bonus chores depending on the complexity.

However, depending on where you live and your income level, you may decide to give your child more or less than that amount. The key is to increase the amount with each grade level — and as the chores get more complicated.

Clark’s recommended weekly allowance:

• First Grade: $1
• Second Grade: $2
• Third Grade: $3
• Fourth Grade: $4
• …and so on

Basic chores can include:

• Make the bed
• Put dirty clothes in the hamper
• Put away toys
• Load the dishwasher or wash dishes
• Set the table

Bonus chores might include:

• Make lunches for the family
• Dust furniture
• Vacuum carpet
• Rake leaves
• Clean windows
• Wash parents’ car
• Shovel snow from driveway

Teach kids about prices and unit pricing

Clark says that when his children were still fairly young, he began teaching them to read price tags in stores, including how much they cost per ounce.

“I started talking to my kids around the third grade about unit pricing because I wanted them to understand the tricks,” he says. “I wanted them to know when something’s a deal and when it’s not.”

Play games to drive home money lessons

Most kids naturally love games and it is a great way to impart lessons while having fun — your kids won’t even realize they’re learning as they play!

Here are a few games Clark suggests to play with your elementary school-age kids:

• Collect coins together and use what you find to contribute to something fun for the family at the end of the year, like a day at an amusement park. Kids can look for coins on the floor, under the bed and under sofa cushions. For added fun, display the coins in clear containers.
• Play “What item costs less?” by showing children pairs of items with price tags and asking which costs less. As they get older and/or better at the game, use shelf tags with the unit price per ounce or per sheet of paper towel to ask which is the better value.
• Set up a good old-fashioned lemonade or baked goods stand. Make sure the kids pay for the ingredients and supplies. It’s a great way for them to learn how hard it can be to make money, and about net proceeds from sales.

Avoid falling into the Affluenza trap

Since we generally have more stuff than our parents ever had, the same goes for our kids. Advertising and peer pressure are also very strong forces in their lives. But Clark has some ideas about how to counteract the urge to buy, buy, buy.

The first one is to replace the old with the new. So, if your daughter wants a new toy, she has to choose an old one to give to charity. The same goes for clothes. This is a great way to teach our children the importance of helping people in need and appreciating what you have.

Clark’s other top suggestion for countering lifestyle creep goes back to the Clark Smart allowance plan. If your son really wants a toy he saw on TV, you don’t have to tell him he can’t have it. Instead, you can tell him he can buy it with his allowance money. Or, you can offer to pay for half if he saves his allowance money to cover the other half of the cost.

With this method, you are teaching how pricing works, but also delayed gratification.

“Kids appreciate something so much more when they have to save up to buy it,” Clark says. “It’s empowering.”

Final thought

However you do it, Clark says, the most important thing for you to focus on is teaching your kids the idea of paying yourself first, the idea of living on less than what you make.

“It’s what you don’t spend that counts,” he says. “Having that as the common theme, regardless of whether your kid is in elementary, middle or high school is so important.”

Many parents feel like it’s easier to give their kid some kind of stored-value card so they don’t need to have cash themselves to give to them. But especially up to age 12, Clark says there is an enormous value to a kid being given cash and seeing that it’s finite.

“Especially in middle class families and above, they’re not doing their kids any favors by letting them have whatever because then the kids think that’s what adulthood is going to be like and it’s not like that at all,” says Clark. “It’s not what you can afford as a parent, it’s what you can afford not to do because of the harm you’ll do to your kid.”

Another great thing you can do financially for your child is to set up a 529 plan for their education savings. See our guide on how to do it and Clark’s picks for the best plans here.