How to Teach Your Preschooler About Money

There is a great debate among parents around when you should start talking to your kids about money.  Some parents believe that introducing concepts of money to children places too much strain and too much adult anxiety on their kids.  These parents want to wait as long as possible to talk to their kids about money, if ever.

While I certainly understand the anxiety for parents who feel like they don’t have the answers about money themselves, parents who wait are putting their kids at a distinct disadvantage by not talking to them about money early.  Research has shown that many money habits are set by the time a child is 7-years-old!

So when does research say you should start?  Well, as soon as a child is able to understand the basic concepts of money.  For most kids, this is around preschool age.  Researchers at the University of Wisconsin-Madison report that by the age of 3 most kids are able to understand the basic concepts of value and exchange that are central to economics.

Why you should start talking about money early

Anyone who has ever handed a four-year-old a dollar bill knows that kids are well aware of money and are hungry for more.  Capitalizing on this inherent curiosity your child has about money means they are more likely to listen and learn now.  By focusing on their interest and abilities at this age, you can help them build a strong foundation for smart money behaviors as adults.

There are four key concepts it is important that your child starts learning early.

1. Money doesn’t grow on trees.
2. There is a difference between wants and needs.
3. Some things are worth the wait.
4. How to share their wealth.

This post will walk you through the main lessons your preschooler should learn about these key concepts and give you tried and tested methods to teach them to your children.  Look out for methods that include printable resources to download at the end of this post to make these lessons a part of your child’s everyday life.  Good luck raising money masters!

1 – Money doesn’t grow on trees

Especially in a time of credit and debit cards, young kids can feel like you have an infinite source of money in that plastic card in your pocket.  It is important to start teaching your little ones now that you can only spend as much money as you have and when it’s gone, it’s gone.  They won’t be budgeting yet, but it instills the values they will need to live within their means as they get older.

Key lessons

1. You can only spend the money you have today.
2. There is a limit to how much you can buy with the money you have.
3. You can earn more money through work.

Age-appropriate ways to teach this lesson

At this age, the main way kids learn is through observation and mimicry, hands-on experience, and play.  Trying to present ideas with theory or lecture isn’t going to get you very far.  Luckily, money is part of everyday life so it is easy to give them real experience!  Here are some fun and productive ideas.

• Start an allowance system
  • Three to four years old is a fantastic time to start an allowance system.  It gives them their own money, at an amount they can see and understand.  At this age, the absolute amount of allowance can be small ($3-$4 a week), but it will be a big deal for them!
  • How to set it up: While I am a huge fan of systems like FamZoo for kids five and older, I think 3-5 year olds are best served by cash systems.  Like I mentioned above, kids at this age are concrete learners and it helps them to be able to see and feel their allowance.  Set up three clear jars marked spend-save-give and help them distribute their allowance into the jars each week.  I recommend picking up a couple rolls of quarters to help your kids divide their allowance out each week.
    • Find printable allowance jar labels at the end of this eBook!
• Involve your preschoolers when you’re shopping
  • Do you frequently go to the grocery store with your kids?  Consider getting them involved by talking through mini-budgets and how best to spend it.  It might mean a few more minutes wandering through the grocery store, but it will change the way they think about what things cost.
  • How to do it: Keep things small. Your four-year-old doesn’t need to know your budget for all groceries for the week. It will be too hard for them to keep track of the cost of what is in the cart and they will lose interest.  Instead, walk into the snack aisle and explain how much you have for snacks (even if you don’t budget that way).  Tell them they have $5, $10, or $20 and help them pick out snacks and do the math.
• Small jobs and chores for extra money
  • Their $3-$4 allowance, split between three jars, probably won’t help your preschooler buy that new doll or Lego set quickly enough for their short attention spans.  Instead of telling them how many more weeks of allowance they need to get their toy, give them some small options to earn a little more cash.
  • How to do it: Keep tasks age appropriate and outside their normal chore assignments.  If your little one is always asking for cash, set up a “for hire” board in your home with small assignments your preschooler can do for some extra money.  Some ideas are sorting dirty laundry, empty bathroom trash cans, or picking up dog toys before mom or dad mows the lawn.  Printable “for hire” cards in the download at the end of this post!
    • Also, keep in mind entrepreneurial ideas! Maybe let your child collect your family’s recyclables and return them at the store for the deposit credit or start a lemonade stand.

2 – There is a difference between wants and needs

Have you ever heard that kid in the toy store crying to his mom that he needs this new TMNT toy?  Or met the adult that is living paycheck to paycheck because they need a new car every 3 years?  The difference between wants and needs is crucial to sound spending decisions as an adult.  Starting now, when your child’s wants and needs are small, builds a strong foundation for their future.

Key lessons

1. Needs are things that we can’t survive without (water, food, shelter, clothes). Wants are everything else.

Age-appropriate ways to teach this lesson

For preschoolers, 95% of the things they ask for are wants, not needs.  This doesn’t mean they should never get the things that they ask for, but it does mean we have to start helping them with correct word choice.  Words are important and tying the right words to behaviors creates strong habits.

• Lead by example.
  • Monkey see, monkey do is crucial for children’s learning at this age.  Think out loud and discuss your spending decisions.  They don’t need to understand, or really even be listening to you, but consistently hearing you differentiate between wants and needs will sink in as a normal practice.  Think about what habits you picked up from your own parents.  Was it the things they lectured you about or the things you saw them do on a regular basis?
  • How to do it: When you walk into Target for toilet paper and see that incredibly cute top, talk through your decision with your child.  For instance, “Isn’t this pretty?  Mommy really wants it, but we need toilet paper so let’s go get that first.”  Even if you swing back for the top, what your kid heard was, “needs come before wants.”
• Work with your child to use the right words, regardless of whether they get what they want.
  • Encourage and reward your child for correctly identifying wants and needs.  If they are complaining that they “need” something that is really a “want”, correct them.  Try to stop yourself from just saying “you don’t need that” and help them come to the correct word choice themselves.
  • How to do it: When your child is using “need” in place of “want” ask questions that lead them to the right place.  Why do you want that?  Do you think you really need it, or do you just want it?  If they seem stuck using “need”, ask them how this thing they supposedly need fits into water, food, shelter, or clothing.  They will pick up the distinction faster than you think.
• Play a game!
  • Playing is one of the best ways to teach people of all ages, but particularly young kids.  You can use a matching game to help your child differentiate between wants versus needs.
    • There is a free game in the free download at the end of this post!
  • How to do it: Have a series of cards that include a number of wants and needs.  Have your child split the cards into the correct piles.  For more incentive, offer them a penny or nickel for each card sorted correctly!

3 – Some things are worth the wait

A popular Stanford study showed that the better a child was at delaying gratification for a stronger payout later, the more successful they could be as adults.  Kids who were able to avoid instant gratification for a better result later (2 marshmallows later instead of 1 now), had better SAT scores, education levels, income, and lower BMI, divorce and addiction rates as adults!

Some people take the results of this study to mean that kids inherently have the power of delayed gratification or they don’t.  But the truth is, by starting early, you can drastically improve a child’s ability to wait for what they want.  This skill holds incredibly significant importance in making sure your children know how to live within their means, avoid debt, and save for the future as adults.

Key lessons

1. You may have to wait to purchase some things you want.
2. Patience means you may be able to get something better down the road.

Age-appropriate ways to teach

While delayed gratification may be the most important money skill your child needs to learn, we have to start at their level.  The long-term power of compound interest or saving for their college is way, way over their head.  Taking their savings jar money and depositing it in their college account is tantamount to stealing to your average four-year-old.

Start with shorter-term goals that they can understand, and celebrate any time you see them choosing to wait for something better or save.  Positive reinforcement is absolutely key to learning at this age.

• Help them save for something & make it visual!
  • Let your child pick something to save for.  Not something too big that would take them months to achieve, but something they can achieve within a few weeks.  Help them make a plan to save for it and support them every time they put more money towards their goal.
  • How to do it: Let your child find something they want to save for.  You want it to be exciting for them, but also not so expensive that it will take too long for them to save the money.  Walk through how they could reach their goal.  How many weeks of allowance, what other ways could they make money, etc.  Then make a visual chart that they can color in or check off as they put more money towards their goal.  The reinforcement of progress will help them stay focused and feel successful!
    • There is a printout of a savings progress chart in the download at the end of this post!
• Teach children to use distractions.
  • This is less money focused and more an opportunity to teach the broader skill.  In the Stanford study, the kids who found ways to distract themselves from the prize right in front of them were able to wait longer before indulging.  Help your kids practice “out of sight, out of mind”, even when what they want is right in front of them.
  • How to do it: When your child is asking for something they can’t have right now, redirect them. Ask them to help you remember the words to their favorite song, how fast they can count from 0 to 100, or the answer to a simple question.
    • If they fight the redirection, which they certainly might, be willing to acknowledge their struggle.  Tell them about something you want but can’t have (a new video game or slice of pizza) and how it is easier for you to handle if you don’t think about it.  Then ask them to please help you come up with a way to think about something else.  They will likely be distracted by their happiness of being asked for help by an adult.
• Don’t back down.
  • Consistency is key to teaching our little ones about most things, but certainly about delayed gratification.  If you tell your child they have to save for a toy, but the next time they whine in the store you just buy it for them, you’ll be taking several steps backwards.  Instead, keep reminding them how much they have saved, how long they have to go, and what they can do to reach their goal.  You may feel like the mean parent, but remember that they’ll be better for it!

4 – How to share their wealth

Want to see a confused three-year-old?  Give them some money and then tell them they have to give some of it to someone else.  This isn’t because kids are selfish but because their world view isn’t broad enough to understand that others need our help.  In fact, most kids are very generous once they learn that they can make a difference to someone else.

Outside of the obvious benefit of raising children who support their communities, there are personal benefits to charitable giving.  Studies have shown that people who regularly give to charity have better measures of mental health and experience more joy!

Key lessons

1. You have the power to make someone’s life better by giving.
2. You are very lucky.  One way to say thank you is to help someone who isn’t as lucky as you.

Age-appropriate ways to teach

By now you know the recurring theme that your preschooler needs concrete, real-world interaction to learn.  Here’s how you can do that with charity.

• Read books about charity and giving
  • While volunteering is the most hands-on way to show kids why we need to help others, there aren’t many charities that are looking for the help of three- to six-year-olds.  Books provide a great way to provide your child insight into the experiences of others and the joy of giving!
  • How to do it: Just start reading! Here are a few of my favorites.
    • Think of Those in Need by Jan Berenstain
    • The Spiffiest Giant in Town by Julia Donaldson
    • Horton Hears a Who by Dr. Seuss
    • Should I Share My Ice Cream? by Mo Willems
  • For more money books for youngsters, check out mini-reviews of my top picks here!
• Help them choose a charity that speaks to them.
  • There are some great charities out there that tie donation amounts to concrete things.  Find one that aligns with your child’s interests so they are passionate about helping out and have something to focus on to keep on track!  You could also consider a local charity that is accepting non-monetary donations, like a pet shelter looking for dog food and use purchasing that item to keep them involved.
  • How to do it: Do some searching without your child to find a well-regarded charity that may align with their interests and then present them with some options.  I like to check Charity Navigator to make sure my family’s money is going to places that will use it well.
    • Some good examples are Heifer International, which allows your child to donate a flock of chicks to a family in need for $20.  Room to Read provides a child a year of school learning to read and write for $50.  The World Wildlife Foundation allows you to “adopt” one of a range of animals for $55 to support their protection of all wildlife.  Your child would even receive a plush of the animal they “adopted”!
• Choose a charity that can help them set a goal.
  • Once your child has found a charity they are passionate about, help them keep track of their goal and what their money is actually doing for others.  Similar to their savings chart, this helps them keep a visual of why they are giving that money to others, instead of spending it themselves today.  You could also offer to match any donations they make to incentivize them.
  • How to do it: Create a visual aid to help your children see how much money they are putting away to give and what the impact of that giving will be.  If they are using a Give jar, put their savings chart near the jar or put a picture of who or what their favorite charity helps on the jar.  Let them know when you are giving to charity as well, so they know it is a forever skill!
    • There is a fun giving challenge printable in the download at the bottom of this post.  Let your kids color in a square when they put money in their give jar.  When the square is filled up, they can “adopt” an animal through the World Wildlife Foundation and support the conservation of wildlife globally!

Make your child a money master!

With these four basic skills, your child will be off on the right foot for a lifetime of good financial decisions.  By applying just a few of the ways mentioned here on teaching them about money, you will make money an open discussion for your family life.  A good practice for both you, and your kids!

When it comes to teaching your youngster about money, remember to keep things simple.  Use concrete examples throughout your day-to-day life, use real numbers, encourage questions, and celebrate instances of your child delaying gratification for a better long-term result.  By starting early, you are building the strongest foundation possible for their financial lives.  Maybe they’ll thank you when they are millionaires!

Download the printable resources mentioned in this post!

You can get the password to my freebie library that has ALL of my free resource files, including all the printables for teaching your preschooler about money by filling out this form:

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Are you talking to your preschooler about money?  What methods are you using?  What are you frustrated by?  Let me know!

This post was proofread by Grammarly.