Kids NEED Financial Literacy: Use these Top 4 methods

Over the past few months, while everyone’s trying to figure out what the heck to do with our children at home, one question keeps popping up in my mind. How do I teach my kids financial literacy? 

Well, as a finance expert, a weird dad, and someone who’s COVID quarantining at home with little kids, you bet I plan to teach my kids about money and have some opinions! 

Learn from my mistakes and victories

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My first attempts may have been a disservice. (Not free money dumped on them by way of allowance? What the heck would that teach?) But I’ve been making up for it with motivation, goals, and delayed gratification. 

Forget simple financial literacy, I’ve even been teaching my toddlers about compound interest and they are telling me to save more! 

Last week, I told my 3.5-yr-old I needed to grab some money for groceries and she said, “Save your money Daddy, that would be better, right?” My finance-dad heart melted.
But I did need the groceries…

-Me

My kids may not be the new Warren Buffet, but just give them twenty years. You’ll be amazed.

Key themes for teaching financial literacy

Before I get into actual techniques I want to cover a few basics. 

Motivation 

Motivation is key

Kids do things they like, and everything else is just a chore. 

I once froze a Mr. Big. into a block of ice and gave my little ones spoons to chisel at it. 

I’ve never seen such laser focus in my life. 

That’s the kind of focus I needed to teach them about financial literacy, and I share how to achieve that for each age group. 

Delayed Gratification

Practicing delayed gratification is every parent’s dream for their child. So what they get for their patience should far outweigh what they could get instantly

But you have to help them build that muscle. Your kids won’t want to save up just because you tell them it’s good. Give them exciting but achievable goals and celebrate with them as they get better and better at saving.  

Maybe I never really learned this:
I still want to get my money fast and save it even faster

Compound  Interest 

Oh, how I wish everyone knew about compound interest. 

Here’s a fun example

If you invest $150,000 at age 30 at 10%/yr it turns into $1M by 50. Cool right? 
That’s without any additional payments. Just set it and forget it. 
If you start at 20. How much would you have to invest to get $1M?
Just $57,000. 
Almost 1/3rd! That’s compounding!

I don’t know if this example gets you excited or frustrated, but it’s one thing to learn about it, and another to see it in action! 

Maybe looking at these numbers won’t get your preschooler excited, so you have to do something else. 

I’ve included a bunch of strategies below to make understanding compound interest tangible.

So without further ado, 

Teaching financial literacy for every age group

Infants: Are you nuts!?

They’ll just try to eat it. Proceed with caution and just be happy if they learn to crawl!

Toddlers: Our kitchen table is now a “candy store”

Motivation: Candy and stickers – the universal child motivators. 

Goal: Benefits of saving + Delayed gratification

We started giving our toddlers simple daily chores and rewarded them with coins out of a change jar. This was a daily occurrence and we made a little ritual around getting money. 

Each and every day we would lay out all the options in front of them and get them to choose if they want to spend their money today or if they want to save it until tomorrow. 

They could spend one coin on a single skittle, three coins on a big candy bar, or ten coins on a big chocolate egg. 

We also compounded their savings – more on that later.

Delayed Gratification:

The longer you save the bigger the payout. 

The incentive to save is a huge one. You save for just one extra day and you get a WHOLE CANDY BAR instead of a measly skittle (see compounding below).

Actually, our daughter kept wanting to spend her money right away, so I got my wife to join in on getting an allowance (she loved that, I’m sure) to show what it would look like to save up. 

After she saw her mom get the huge chocolate egg, our daughter was more motivated to save! 

Compound Interest:

100% interest PER DAY

Okay, maybe this isn’t realistic (or sustainable) but to show the awesome effects of compound interest, we doubled the amount of money they saved each day. That’s right. 100% interest! There were two big reasons for this:

  1. It makes saving and delaying very attractive (it was STILL a hard choice for them)!
  2. It’s simple. Each saved coin = 2 tomorrow

Side note: This got a little crazy when my wife joined in because she kept saving and broke the bank. I taught her well…) 

Problems we ran into. 

  1. My wife and I wanted to eat the candy outside of “store hours.” We had to develop an iron will in order to not run out. 
  2. We had to heavily incentivize saving. I mean 100% interest? That’s crazy! (And even at that, it didn’t always work.)
  3. We don’t really want to keep stuffing them with candy… so we told them that once the candy runs out we’ll stop. This was a quarantine thing only! (Or we’ll introduce hyper-inflation)
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School age: Spend money at a real store

Motivation: Still candy, but also to impress you. 

Goal: Financial fluency + Goals

The key here is something achievable, but also extremely motivating. (I mean this works for us as adults too… (See also – Lebron of FIRE) )

My kids are learning about goals. And their goal is one of those giant boxes of Halloween chocolates

We’ve always make it a point to have them hand over their little coins to the cashier so they could see that things are exchanged for money. (Despite the fact that we hate dealing with actual cash.) 

Some might call this questionable parenting, but this is more than a giant-pack of chocolate. This is a relentless pursuit of a dream! 

Delayed Gratification:

Hey, they’re still small. Give them lots of praise for saving up and make it a huge celebration when they can reach their goal. It’s a BIG DEAL!

Compound Interest: 

So maybe “doubling” their savings on a daily basis like we did with toddlers is no longer sustainable. But you should still find a way to reward them for saving by paying out some “interest” on a weekly basis

Age-appropriate money talk: 

Now, while they’re still small, we say that we’re “doing business” or “earning money” if we’re taking a moment to do some work or sell something. 

Also, if we take our kids to the store, we let them look at all the cool things out there, but if they ask to bring something home, we’ll say “we didn’t bring enough money for that” or “maybe we can save up for that.” 

The last thing we’d want is for them to enter the next phase with no idea how to manage their cash! 

Teenagers: Trial and error with investing

Motivation: Having money; Impressing everyone else who isn’t mom or dad. 

Goal: Financial motivation + Rough understanding of investing

You probably have so many life lessons for your kids at this point, that keeping up with them can feel more like nagging. 

So at this point, your number one goal is to keep your kids motivated

When I was young my parents promised me they would double a stock purchase at the end of the year. I barely knew what a stock was, but now I was motivated to save up and to research as much as I could and get it DOUBLED! 

Delayed Gratification:

Part of the deal was that I had to leave it in place for 5 years. They wanted to show me how effective long-term investing was. It worked I guess! (I would recommend you also buy an index fund as a control…plus I love index funds)

I recommend this to everyone. Tip: Don’t setup an account in their name. It’s too much work. The sums will be small enough that you can handle the tax implications.

Compound Interest: 

At this point, your teens are old enough to understand how compounding really works. So show them the numbers. 

Even better: make them see it for themselves with their own money
Even better-er: They lose it!

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Young Adult: Real skin in the game 

Motivation: Actually having money

Goal: Prepare them for having a real income

Okay, so we’re entering new territory here. When you’re in college, you probably have very little money as it is, and the idea of retiring (before you’ve even started working) seems completely obscene! 

So this is the time to learn real skills. 

If you learn saving and investing skills while you have no money, you’ll be GOLDEN once you get a real job and have an income! 

Also read:
Reasons to self-manage your accounts
Really simple investing techniques (Best online brokerage: Canada, USA)

Delayed Gratification: 

This is going to be really hard when all their friends are going out for beers, but get your kids to auto-withdraw $100/month (or any amount, really) to start investing. 

Now give them a little grace – they’re busy, so recommend something easy like an index fund. Now they can learn about investing and start to internally feel the value of investing and saving. 

Ideally they WILL forget about it. When they graduate remind them and hopefully they will say:

Holy! I was saving so little, this really paid off!

-Me when I graduated!

That’s hopeful thinking but you really want to drive home the idea that they can have a real effect on their savings.

Then, when they have their inevitable income spike, they’ll be motivated to invest instead of blowing it on a cool car. 

That’s what I did, anyway, and now I’m retired in my early 30s. I think it was worth it.

Also interesting: Real estate is great but it’s not for kids. I’m really into it.

Compound Interest. 

By far, the biggest lesson young people with money need to learn about is the power of compound interest. 

Yeah, I learned about it in school. And then I learned it again. And again. But it didn’t feel real until I started seeing it over time with my own money. 

So now that your kid has their own money to invest and has entered adulthood – make it concrete. Show them the power of compound interest. 

Few other keys here. 

  • It has to be their own money. Otherwise, there’s no skin in the game. 
  • You also have to be okay with them making mistakes. Give them any guidance you can, but tell them it’s okay when things don’t go how they wanted. 
  • Losing a few hundred dollars on the stock market can feel terrifying when you’re young. Good. That’s a good lesson to learn. 

You made it! I don’t know how far you are on your path to the FIRE escape, but give your kids the gift of financial confidence and they’ll be on their way to becoming the next Warren Buffett…or better yet Leif Kristjansen! 😛 

TL;DR – Financial literacy for kids

  • The key drivers to teach financial literacy for kids are:
    • Motivation – use what motivates them not what motivates you. 
    • Delayed gratification – super important, but keep it age-appropriate. (Toddlers aren’t as motivated to see the fruits of their labor as older kids.)
    • Compound interest – Make learning about it fun and tangible! 
  • Use my techniques for any group from toddler to college. 

Now I’d love to hear from you, do you have any fun tricks to teach financial literacy to kids?



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