The beginnings of financial intelligence

Can You Teach Toddlers About Money?

by Nichole Richardson

Have you ever wondered why some people are great with money while others barely get by? Yes, income makes a difference, but so does having smart money skills instilled at a young age. Children are ready to learn the basic concepts of financial well-being as early as the toddler years, so start giving your kids the building blocks they need early in life to set them on a track to a sound financial future.

According to a March 2016 survey conducted by Harris Poll on behalf of the American Institute of CPAs for Financial Capability Month, seven in ten parents (68%) give their children an allowance. While this is great news for school-age children, it says little about managing money matters in the pre-elementary, early childhood period of three to five years. Experts agree that even toddlers are capable of learning the most rudimentary financial skills.

It all begins with "executive function" skills, which toddlers are actually learning to master all on their own. "Executive function enables us to control our behavior, set limits, plan, focus attention, prioritize, remember information, make decisions, problem-solve, and achieve goals," explained Child Psychologist, Dr. Cherie Baetz-Davis, Ph. D., owner of Compassionate Psychological Care in St. Louis.

Can You Teach Toddlers About Money?

OK...What Does Executive Function Have to Do With Money?

As toddlers begin to learn the life skills of planning ahead, cause-and-effect, and waiting for things they want, they are also simultaneously paving the way for positive financial behaviors like goal setting, saving for the future, planning, and budgeting.

Certified Financial Planner professional, Lisa Avenevoli, CFP, CMFC, and Director of Business Development at Steve Robbins Wealth Management, agrees with teaching toddlers about money as early as possible but says it's not necessarily a "sit-down lesson."

"Like most things with toddlers, they learn by example and by watching how we, as parents, handle situations. I often see parents 'give-in' every time their child asks for something and then they rationalize it, making things even worse in the long-run," said Avenevoli.

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She suggests instead of caving, it's crucial to talk to your toddler about the value of money and the importance of things you need versus things you want. Comparing prices is another strategy to help accomplish this and older toddlers may benefit from the hands-on experience of paying up!

"Every time my kids leave the lights on in their rooms or the bathroom as they walk out, they are to give me a quarter from their piggy banks. I explain that we pay for the lights to be on and have even gone so far as to show them the utility bill, which really helped to put things in perspective!" said Avenevoli.

Allowing your child to wait his turn for the swing or feel angry about a missed play date is not only good, but necessary, for success down the line. "The child has ample opportunities to learn delayment of gratification. Of course, it is easier if you acknowledge their disappointment, yet are still firm about the limits," said Baetz-Davis.

Find Out: Could You Earn $50 While Junior Naps?

So What Are Some Concrete Ways to Teach Toddlers Money?

Toddlers love to play! You can turn many everyday tasks into financial lessons. Kids as young as three begin to understand that money is used to buy things and earned by working.

While you're out with your toddler, you should notice people's jobs. Describe them. Let your child help prepare a list and stick to it while shopping. Talk about the costs of items; think out loud about why you pick one item over another. Work your child's memory power on the way to places by way of Simon Says or I Spy.

Supporting Activities to Encourage Money Manners

Encourage children to discuss money and to understand that it's an object we use to buy things by bill or coin. Pretend play, especially play that deals with the handling of money, is a great way to teach.

Play the money sorting game and sort coins from smallest to largest, by color, or by value. Match, sort, and count coins and bills as much as possible. Pick up items around the house like paper towels or cereal boxes and make a game out of guessing the correct price. Make a coin ID game, or for littler toddlers, just trace around the circles and let them color them in. Rent the book Lots and Lots of Coins.

Parents can set up routines with their children that teach money knowledge without their children even realizing it's happening. "Remember that setting limits and making decisions with your toddler is preparation for being able to responsibly handle money," said Baetz-Davis. By incorporating conversations about money into everyday life, children will be better equipped to handle and manage it correctly.

"As parents, we want to give and do more for our children than our parents did for us. Trust me, I truly understand this. However, wanting them to have the best has somehow equated to being the best. Many adult children have lost the value of earning money, and, for that matter, respect," warned Avenevoli.

Take the Next Step:

  • Learn more about raising money-smart preschool children.
  • It is never too early to start teaching your children the importance of saving. Compare savings and money market account rates and open an account for them today.
  • Is your family heading for debt trouble? Many families are and don't even know it. This simple checklist can help you determine if you are and what you can do to avoid it.
  • It's tough raising kids today! You need every time and money saving idea you can find. That's why you'll want to get our free weekly Dollar Stretcher for Parents newsletter. You'll find great ideas designed just for parents that will help your family 'live better...for less'! Subscribers get a copy of our ebook Little Luxuries: 130 Ways to Live Better...For Less for FREE.

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