Kids as young as age 3 can learn about money. Here’s how to empower them

Handling money wisely is difficult for people of any age, but it seems to be an especially tricky concept for kids as money has become less tangible.

When I was growing up, I saw cash and checks being used as the normal form of payment. Kids today see Mom and Dad swiping a card at Target, placing an order via Alexa, or pushing a button on their phone and Amazon boxes full of stuff just magically appear on the doorstep.

Combine that with a lack of financial education being taught in school and we have a real problem on our hands.

What kids do learn is observed from their parents or friends, and the rest is learned purely by trial and error. It is so important that we are mindful of what children are seeing and what we are teaching them.

Kids as young as age 3 are interested in money and can understand very basic concepts. A study in the Journal of Financial Therapy states that many of our attitudes and biases concerning money are shaped by age 10.

We all know it is extremely difficult to change a behavior once it is ingrained. Therefore it is crucial to instill good money behaviors, habits and practices as early as possible.

Here are three concepts that your kids should understand before their 10th birthday.

▪ Money is finite: When it’s gone, it’s gone

Research shows that 60% of Americans are spending all or more of their income, which means they are in debt (or about be) and don’t have an emergency fund. Kids need to know that once a dollar is spent, you can’t get it back.

In the book, “Smart Money, Smart Kids” Dave Ramsey and his daughter, Rachel Cruze share a great example of learning this concept. Rachel had a certain amount of money that she could spend on whatever games she wanted on their trip to a theme park that day.

She eagerly started playing the first game she saw and ran out of money within the first 10 minutes of entering the park. Dave and his wife stuck to their guns and did not give her any more play money for the day, using the situation as a teachable moment. Rachel says that lesson has stuck with her for life.

It’s important that our kids learn these lessons while they are young and the stakes are lower.

If she had never learned that lesson and continued to blow through funds as fast as she received them, managing paychecks as an adult would be more difficult and would result in much more serious consequences.

We have to let our kids “fail” sometimes to learn these lessons early in life while they are in a safe setting.

It is also important to understand the concept of opportunity cost. If you buy X, you will not be able to buy Y or be able to pay this upcoming bill.

▪ Money is earned through working

Work is a good thing and it’s necessary for making a living.

Our kids need to know that we work to earn money to buy the things we need and to live the lifestyle we want. Learning to be a good worker is probably one of the most important skills kids can learn because it will set them up for a better future.

In your younger years, your ability to earn money is your largest financial asset. We refer to this as “human” capital instead of financial capital.

We all want to do meaningful work and feel proud of ourselves for a job well done. You can help encourage this mindset by helping them take pride in the chores they do around the house or jobs they do for others.

Show them the value of what they’ve done and how having that task done well helps the whole household function. Just telling them that you are proud of them for doing a good job will go a long way.

▪ Delayed gratification/patience

Having a “Buy now, figure out how to pay for it later” sort of attitude can get you into big trouble. You simply can’t have everything you want right when you want it. The sooner kids understand that, the better.

If there is something they want, help them identify the cost, set a goal and determine a plan of earning money to save up and buy it.

Saving up for something special teaches patience and ensures that you actually do want the item/experience. Many people find that in the process of saving for something, it’s not actually that important to them and they’d rather use their funds for something else.

Have you heard of the 24 hour test?

If you find something you really want to buy, just wait 24 hours and see if you still really want it. Once that item is out of sight/out of mind, most people find that they didn’t actually want it. Alternatively, the 24 hours gives you a chance to do some comparison shopping, take stock of what you already have that may be similar, or find a coupon for it if you do decide it’s a worthy purchase.

The sooner you start having these conversations and instilling these concepts, the better. Look for teachable moments and fun ways to talk about money, work and saving.

Jamie A. Bosse is a CERTIFIED FINANCIAL PLANNER professional and a board member of the Financial Planning Association of Greater Kansas City. She the author of the children’s book www.MiltonTheMoneySavvyPup.com. She also is a Financial Planner at Aspyre Wealth Partners.