The money conversation is one that many families shy away from for a number of reasons. Financial literacy for kids might not be the most interesting topic to talk about with kids, but it’s an important one. Kids who learn about money matters early are more likely to grow up to be financially responsible young adults.

So, when is the best time to start having the money conversation with kids? Right now is best. Why wait? No matter how young your child is, there are ways to teach them about money in a way they’ll understand. Financially literacy for kids doesn’t have to be about complex computations or concepts. Neither do you have to schedule chunks of time every week to educate children about money matters? You can find opportunities every day to teach kids about money, regardless of their age.

If you’re not sure where to start or what to say, these tips will help.

1. Start Slow

For kids below 5 years, you want to start slow and focus only on the basics. Tell them where the money comes from – you have to work for it. Explain the importance of saving money and not spending every last dollar when you go shopping. Help them understand the difference between wants and needs.

Most important of all, encourage your child to save. Learning to save is one of the most important lessons that young children should learn. They can get started at any age. Go back to basics and buy your 2- or 3-year-old a piggy bank. Watching the piggy bank slowly fill up every time a coin is dropped into it in will motivate any kid to keep savings more and fill the piggy bank quickly.

Set an example by opening a savings account for your child when they are born. When they grow and are able to understand, they’ll see a real-life example of how money grows when you save.

2. Explain How Money Works

Young kids won’t make the association between earning and spending on their own. In fact, they wouldn’t have given a thought to where the money is coming from or that it is limited.

Help your kids understand that your paycheck pays for everything from groceries and utility bills to mortgage payments on the home. That money is limited and that’s why you have to sometimes say no when they want something that’s out of your budget.

While you’re at it, show them how to create a budget too. Better still, ask them to help you balance the household budget. They can be responsible for simple tasks such as adding up the total cost of utilities. Or subtracting the total expenses from your income. This will give them a better idea of how much money goes towards everyday items such as groceries. They’ll also have a better understanding of how much we pay for things we cannot see such as electricity, gas, and mortgage payments. Part of financial literacy for kids is in the “doing.”

3. Give Your Kids an Allowance

An allowance is more than just an easy way for kids to get hold of spending money. Allowances hold so many crucial financial lessons. It teaches kids practical lessons in income managements, budgeting, and spending within their means. In order to impart these lessons however, there are some things you must do.

Start a discussion with your kids about how they plan on spending their money. It’s important to let your kids have the final day on how to spend their allowance. However, getting some insight into their desired purchases can open up some interesting money discussions. You can incorporate some crucial money lessons and influence their decisions without actually telling them what to do. This is also a great time to touch on the importance of saving.

One interesting money management aspect that almost always comes up with regards to allowance is what happens when it’s over. Your child is excited and spends all their allowance within a few days. Giving them additional allowance at this time is a huge mistake. Use this as a teaching moment instead.

If your child want more spending money, give them the opportunity to earn it by doing chores. Have a family discussion about the types of chores and how much they can earn for each chore. Once you’ve reached a decision, don’t negotiate and don’t give in. If the job is not completed or is not done properly, they don’t get paid. This will teach them that you have to work to earn money and you only get paid for a job well done. It will also teach them about budgeting, how to stretch their limited funds, and how it helps to save. 

4. Teach Your Child How Credit Cards Work

Credit cards can be confusing even to older kids. It’s easy to understand that you pay cash when you want to purchase something. But how do you buy with a credit card? Where does the money come from? To kids it seems like credit cards give you unlimited purchasing power. That misconception can lead to devastating credit card debt.

Don’t wait till you’re kids are about to go to college to talk about credit cards. Start that conversation early. Explain how you pay for items that you buy using your credit card. Tell them where the money from and what happens if you don’t make your credit card payment. How to use a credit card responsibly is a crucial lesson that every child should learn.

5. Tell Your Kids About Your Own Experiences with Money & Your Money Mistakes

Did you take student loans or a vehicle of home loan? Did you struggle to pay back those loans? How did you finally manage to clear your debt? What about credit card debt? Talking about your struggles with debt and what sacrifices you made to become debt-free are valuable lessons. They may influence your child’s relationship with money positively and help them make more educated decisions with regards to credit.

Financial literacy for kids is important when teaching kids to save money. And it will help with the tough college planning conversations later on. So start now! Try out College Financial Planner Tool to get you started savings today for your child’s college education.