Financial Literacy for Kids

When you weren’t taught money management skills as a child, the thought of teaching financial literacy to your own kids can be intimidating and, maybe, even a little bit scary.

But starting your kids out early on money management skills is critical for their future well-being.

Importance of Teaching Financial Literacy to Kids

Canadian students are among the most financially literate in the world.

According to a 2020 survey, Canada ranked second among the 20 countries where 15 year-old-students were asked about their knowledge of money and financial skills.

If Canadian kids are doing so well with money skills, why should parents care about teaching their kids financial literacy? The same research showed that teens could earn 30 more points in their financial literacy scores just by having finance-related conversations with their parents.

Just in case that doesn’t motivate you to talk ka-ching with your kiddos, consider the following reasons to talk about finances.

They’ll understand the value of money early on

This will help them know that it’s something earned and something that needs to be managed well for them to buy their needs — and their wants.

They’ll be more adept at setting and achieving financial goals

Do they want to buy a toy? Teach them to allocate a portion of their allowance and save for it.

They’ll have more assets in the future

Children who learn how to save at a young age are more likely to acquire more assets and prevent going bankrupt when they get old. Having savings and investments can also help them get by during rainy days and unprecedented events that cause economic losses like the COVID-19 pandemic. Additionally, this will help them prepare for their retirement better.

They’ll be inspired to impart financial education early to their kids in the future

This is one of the most vital benefits of being financially literate early on. As your kids would reap the rewards of being wise with their finances, they’ll be motivated to pay things forward.

Strategies to Help Your Kids Learn Personal Finance Basics

You’ve read about the benefits. So, how do you teach kids the fundamentals of personal finance?

First off, they have to have a clear concept of money. Money, in its simplest terms, is a “medium of exchange.” It’s used by people and various entities such as businesses to acquire products or services they need or want.

Next you’ll want to teach them a few key concepts that set the foundation for financial literacy: how to earn, how to spend wisely, and how to save and invest.

A good way to start is to introduce books and games that involve money or teach financial skills. (Get suggestions on games or books that are good for financial literacy for kids, here.)

How to obtain money

The primary way people get money is by working and performing a job. In exchange for our time, energy, and skills, we’re getting paid a salary. In the context of kids, they can earn money by doing part-time jobs (especially during summer vacations) or errands for you that can be rewarded with some cash. At their age, they primarily obtain money by the allowance you give. But by letting them work hard for it, you’re teaching them that money isn’t to be taken for granted.

Being wise about spending

Acquiring money is one thing. But shelling it out is another. Many get chained by financial obligations because they don’t know how to spend money smartly.

  • Needs vs. wants. While they’re young, you have to teach your kids about “needs” and “wants.” The former comprises basic necessities to survival and everyday living like food and water. On the other hand, the latter are things they dream of having, such as toys and fancy shoes. In any case, “needs” have to be prioritized over “wants.”
  • Comparison shopping. Whether they’re buying what they need or what they want, you also have to educate your kids about smart shopping. This entails comparing various product prices first and weighing in on quality before finally buying something.
  • Tracking spending. Kids and adults alike need to know where their money is going. By creating a simple handwritten list or relying on an app, anyone can easily monitor how much they spend and for which items.

Why save and invest

While money is a medium of exchange, it doesn’t mean that it needs to be spent now.

When teaching financial literacy to youngsters, you have to open their eyes to the importance of saving (setting aside money that you can use in the future, especially in case of emergencies) and investing (putting money in some vehicle that allows it to profit).

The easiest way to start teaching the habit and value of saving is to get your kids to open their own savings account. Where and when possible, actually take them into a branch and sit down with an advisor to go through the process of opening up an account.

Most big banks and major credit unions offer youth accounts that charge no fees. Not only will your kids start the habit of saving money in an account, but they’ll be a step close to learning the digital side of finance management.

Strategies to Improve Your Financial Literacy

When you teach kids about money early on in life, it sets them up to be responsible adults with good money management skills. Financial literacy for kids equips them with a healthy perspective about money. 

Saving and Investing

Saving money is one of the essential financial skills you can teach your youngsters. Developing a good saving habit can help establish good control of their money. 

How do you teach kids to save? You can start by helping them understand the difference between wants and needs. They should know the essentials such as food, shelter, simple clothing, health, and education. When you go to the grocery (or shop online), quiz them and ask them if an item is a need or a want. This way, they will have a concept of things they should spend on and put aside some money for the future.

It will also be smart to teach your children about investing. You can do this even before they understand the concept of portfolios and asset allocation. You can start by explaining to them the basics of risks and rewards, as well as profits and losses. Investing activities could be fun for kids 10 and up since you can use mobile devices or computers to do so. You can try virtual investing and build an online portfolio you can monitor with them. Along the way, you can teach them about compounding and how their money can work for them in the long run.


Budgeting is another vital skill that can teach kids to come up with a spending plan to achieve their money goals. While kids at a very young age will be receptive about the concept of money, experts say that eight years old is the ideal age to discuss budgeting.

To help them understand the concept of budgeting, they need to know about income. They need to grasp the concept how income works. You can give them a peek of your household budget and show samples what portion of your funds are spent for food, rent, insurance, and other items. From there you can progress to teaching them how to set their own money goals. Begin with simple things such as saving a portion of their allowance for a video game they want. Make sure they know how to keep track of this and that they set a deadline.

Credit Cards, Building Credit, and Taxes

Another way to set kids up for financial wellness is to help them understand credit. Explain to your kids how credit cards work and how to use the plastic wisely. They need to realize that when they use credit cards, they will deal with fees and interest so they need to spend well below their means.

Part of a good financial literacy training is knowing how they can start building their credit. You can add your kid as an authorized user of your credit card. Remember, their late teen years and college years are crucial to understanding these concepts.  Lend them some money and ask them to pay you back. Point them in the right direction by teaching them how to create a payment plan and stick to it. Later on, you can guide them when they look for their first apartment or a car loan.

Adults should also be proactive in teaching kids about taxes. They need to understand that taxes have been imposed for centuries and that the government uses them to provide for the needs of its citizens. The discussion should be age-appropriate such as showing young kids playgrounds, bridges, and other structures built because of taxes. For middle school-aged kids, you can talk about different types of taxes and the purpose of these taxes.

Where to Go From Here?

As they say, you cannot give what you do not have. Adults must serve as a good example. Your kids look up to you, and you will be the most significant influence if they will make wise money decisions and know how to deal with the rough dealings of life.

Financial literacy for kids prepares them for the ups and downs of life. It is not a one-and-done endeavor. You need to be the financial lighthouse or compass of your kids. Show them the right direction. Beat the drum and set them up to conquer all the hurdles they encounter as they approach adulthood.

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