Cambridge University agrees–children learn money skills before the age of seven. Because a young child sees what happens at the cash register. Seeing what money does happens long before knowing how money works.

Parents are the most effective teachers in the early years. Behavior experts say that children shape many of the money habits they will carry into adulthood. The study recognizes the power of parents to help kids develop good money management skills starting at home.

These years are a great time for you to show and tell as it relates to the world of money. You start by showing your child money in the form of cash and doing the activities in my book, The No-Cash Allowance.

As your child learns about cash you tell how money works by explaining what you are doing when you use cash and cash substitutes (check, debit card, credit card, electronic fund transfer).

In addition to giving children money to manage, there is a new wrinkle in teaching kids about money. That is our continuing trend to cashless transactions. This means that money many not exist as cash, but only as a number.

So, in addition to giving your children an allowance you can help them develop the skill of keeping track of their money. This is easily done using an account log like this:

If your child writes in the weekly allowance they will record more than 900 deposits before graduating from high school. Consequently, your child is learning that money can be managed as a number.

Money concepts for young kids

Parents play a big role in helping a child learn five important concepts before age seven. These are building blocks to learn money skills.

  1. Money buys stuff.
  2. You have to have enough money to buy something.
  3. People work to earn money.
  4. Money can be cash or something that represents cash.
  5. It’s okay to “not spend” so there is more money to buy something later.

Note to parents: For kids, the act of “not spending” is a form of saving. Because the child makes the decision to defer spending he is motivated by a result he expects in the future, e.g. a toy that costs more than he has today.

Of course, there is more to money than spending, but with young children when it’s “all about me” the activity of spending for self is the starting point. Having money is a big deal to a young child. Going shopping and making decisions about using money is even more exciting.

Lynne Finch helps parents teach their kids about money from first allowance to online banking. “It’s time to teach the kids how to manage money they can’t see or touch,” says the author of The No-Cash Allowance. Follow Lynne’s common sense approach for teaching children that money is a number with kids as young as pre-school through high school.

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