Teaching Basic Money Concepts

Most of what I learned about basic money concepts as a child I learned from observing my parents. It was easier to learn this way back then because I grew up in a day when most transactions involved trading cash for goods. We live in a different time now so kids might not easily grasp  concepts and need to be taught.


 

Teaching basic ideas about finances to kids while they’re young helps you lay the foundation for sensible habits when they grow up. One of the first basic facts you’ll need to cover with children is what money actually is, and why people use it.

Begin by explaining about cash itself: different types like coins and notes, how change works, as well as some more abstract ideas such as checking accounts and debit or credit cards.

What Money Is and Why We Use It

Very young kids may be confused of the whole idea of cash and trading value. The idea of a straight swap or exchange is more natural to most kids. You can introduce the idea by setting up a simple pretend shop with play money in your house. Give your child some play cash and coins and let him or her “shop” for items, and explain how much each thing costs in relation to the play cash (keep prices simple, $1 or $2 at first).

Explain that it’s easier for people to use cash to buy all sorts of different things, rather than trading for them, because money is something that everyone can use.

Coins and Notes

Children may at first be confused about the fact that notes can be worth more than coins. After all, many kids think the value of cash is in what it’s made of – how can paper be worth more than silver? You can also explain this with play cash – five of these coins is worth one of these notes, for example.


To help older kids learn the value of the coins you can play a simple game with them.

Give each child several coins of each denomination. Write an amount on a piece of paper and see who can come up with the most ways to match the amount you wrote down with the coins they have.

For example, if you write down 45 cents, they could do 4 dimes and a nickel, a quarter and two dimes, etc. This will not only reinforce the values of the coins but will also give them counting practice.

For younger kids, the gumball machines at supermarkets are a great way to teach them how cash is used. Allowing them to put in a dime or quarter to get a gumball will teach them the basic concept of exchanging money for goods.

Teaching Basic Money Concepts- Change

After they've learned how notes and coins work, you can get in the idea of change. This can also be done through your home play store. (Your child will need to have basic counting skills before you attempt to teach this). Simply have your child buy a $2 item with a $5 note, and give the appropriate $3 change. After you’ve done this a few times and the child understands the idea, switch roles have and him or her play the shopkeeper and calculate the right change.

Ideas About Money

As well as the fundamental practical side of dealing with cash, it’s important to teach kids some abstract basic money concepts. With some of these ideas you’ll have to wait until the child reaches a certain age and level of intellectual development, but a few basic tips can be explained to kids at quite a young age. For example:

• Money is important and shouldn’t be wasted. Explain that most of what you have in life is paid for with cash. Let the kids know the house, car, their clothes, and the food they eat is paid for with cash. Money is an important tool and should be treated with respect.
  
  



• Earning cash requires work. Kids need to understand that money doesn’t grow on trees. Let them understand that you work to earn cash, and when you start giving out an allowance, make sure they work for it by doing chores around the house.

You can make teaching basic money concepts part of everyday life.