Financial lessons your child needs to know before elementary school

Money is such a taboo subject that it can be difficult to teach financial lessons to children – especially when they are very young. Money management is like reading (or any other complex skill) in that little ones need to learn age-appropriate lessons as they navigate their way through adolescence and adulthood. 

Little ones aren't suddenly able to read or write without first learning and practicing the alphabet, so you shouldn't expect them to suddenly understand how to manage money just because they reach a certain age. It is advisable that the study of financial education begins early.

Here are 4 money lessons you can teach your kids so they know about finances even before they're in elementary school.

• Budgets are important

Even little ones as young as 3-4 years old can learn to make a basic budget, a skill they will always need. To start, guide your little one to allocate their money (from allowances, birthday money, etc.) into at least two categories: to spend and to save. This will get him used to not spending every penny he gets. Plus, as he starts earning his own money, you can help him better understand the concept of saving by giving him a piggy bank. With the money raised, he will be able to buy his much-desired toys.  

• Money does not "fall from the sky"

Young children often feel that adults only need to go to the bank or ATM to get more money. They see parents taking withdrawals, which they don't associate with time spent at work. When you go to the bank together, explain that the bank keeps the money you've worked for and that you don't have unlimited money. To teach this lesson more concretely and effectively, you can guide the little ones to work to make their own money. Many experts in financial education believe that allowances should be tied to different tasks, but you can give extra money to children for some chores that they want to do around the house, around the garden, etc. 

• It's okay to make mistakes

Parents protect their children at all costs, but it can be a mistake when it comes to protecting them from disappointment and the consequences of overspending. Your little one can learn a great lesson about budgeting when he's excited to spend all his money on cookies and soda at the amusement park—and later is sad to realize he doesn't have enough money left for games or rides. It might be tempting to give him more money to play his favorite game, but it is better in the long run for him to realize that money is limited and that his parents' finances are not there to get him out of financial trouble.

• There is a difference between wants and needs

This can be a difficult concept for some adults to grasp, but especially for young children who absolutely want to have the latest toy on the market. You can make this a game you play regularly, asking your child what he needs to live vs. what he wants to have. Also tell him your own specific desires (like that trip to Spain you've always dreamed of) and talk about what and how each of you can do to one day have the things you want.