What the little one needs to know about money, depending on their age

Nowadays, financial education plays an important role in the development of the little one because he will learn to do well financially, know how to keep a budget and invest in his future. 

A 2018 study on financial literacy found that education about money and everything related to it was correlated with better financial behavior, such as saving. The conclusion of the report is that: "49% of respondents who studied more than 10 hours of financial education report spending less than they earned, compared to 36% of those who learned less than 10 hours."

While it's never too late to study, the earlier we learn the basics of finance, the greater the long-term impact. Below are some ways to teach kids about finances at any age.

Children start learning from the moment they are born. Initially, this learning is based on imitation, such as following the parents' example to smile, look at various objects and say the first words. They learn and pick up habits.

You can start when they are young, setting a good example for them to follow later. Among the habits they will pick up are paying bills on time and resisting impulse purchases. When you talk to your child about the decisions you make, he will learn how to make better decisions about what to buy (or not buy).

Preschoolers and kindergarten children

While little ones this age may not realize the value of money, they should understand the need to pay for merchandise. Children learn from shared experiences, so you can take them shopping to understand this process. To make it more tangible, leave your credit cards at home and use cash.

By age 7, we develop basic financial behaviors, according to a report from the University of Cambridge. Before you think little ones are already behind, consider that they've already covered the basics: counting and shifting.

• • Counting: This starts with simple counting of objects, continuing with counting money. Show children the different types of coins and bills, allowing them to recognize the differences, group them, and then count that specific set.

• Exchange: One of the hardest lessons to learn at this age is that something has to be given up to make a purchase, and money can only be spent once. To teach this, give your child a bill to spend in the store and focus on choosing an item they really want. The child must give that bill to buy the item and experience the exchange of goods.

From the 1st grade to the 5th grade

With a basic understanding of the purchasing power of money, the elementary school student probably now wants more. It's time to explain to him how to earn money, how to save it, and what the opportunity costs are. 

• Earning money: You can create a list of easy tasks for the little ones to complete and for which they will receive a certain amount of money. This teaches him the ultimate lesson in finance: it takes work to make money.

• Savings: It's time for a piggy bank or maybe a transparent jar that allows the child to see how the number of bills and coins increases over time. It helps reinforce the benefits of saving. 

It's also important to explain why you're saving: short-term needs, long-term goals, and building an emergency fund. Provide scenarios to explain how you save and why. Honesty will help them learn and appreciate real-world finances.

• Opportunity cost: A fifth grader should be able to understand opportunity cost even if you don't use the term. Opportunity cost is the loss of potential gain from other alternatives when only one alternative is chosen. You can help your child understand impulse buying versus long-term goals. It is a constant struggle that we begin to learn at this stage. Explain the difference between needs and wants and how to prioritize them. We've all made impulse purchases at some point, but we have to learn to recognize them and limit them.

Sixth grade through eighth grade

During this time you can establish a lot of excellent money principles for the middle school student. The next stages focus on expanding these basic concepts with income, budget and satisfaction.

• Income: By middle school, you can have a conversation with your child about the need to find a career that will support them for a lifetime. Explore different job options and discuss both their responsibilities and their salary. It can also be a good opportunity to explain to them why the salary is not the amount brought home. Explain to them about taxes, social security, insurance premiums and other deductions from the salary.
• Elaboration of the budget: Although your child doesn't need a personal budget right now, it's a good idea to learn how to set one. Include him in budgeting by asking for his input on financial decisions, such as meal planning for the grocery budget.
• Gratitude and Giving: "Alexandru got a new phone. I need one too!” It's easy to compare ourselves to others, and for tweens and teens, the pressure is even greater. Children this age need to learn contentment – to be content with what they have rather than trying to keep up with their peers. Even better, they must learn to appreciate what they have. If they don't already, kids should understand the benefits of giving back and donating to charity. Volunteering or donating items is a good lesson for all of us.

High school students

Teenagers seek and need new levels of independence. It won't be long before they are on their own. Many of the lessons in this stage are hands-on experiences with a checking account and budgeting for college.

• Personal accounts: Every teenager needs to know how to balance a checking account. Personal accounts show the ability to handle finances. While a checking account is technically all a teenager needs, it's a good idea to open a savings account as well (if you haven't already) so they can include deposits in both accounts and see the impact of compounding interest firsthand.
• Credit cards: Our society relies heavily on credit cards, which can have their advantages. However, they can include high fees and interest rates, even more so for those with limited or no credit history. Teens need to learn the dangers of credit cards and how to use them wisely. Teach them to pay off the balance and avoid buying things they can't pay off each month. Research student credit cards together and discover which one is best for your teen.
• Paying for college: The cost of college is skyrocketing, as is student debt. As you prepare for the next step, compare costs together and discuss how you will pay for college. Not all high school students have to go to college, and some schools are much more expensive than others. Along with college options, research available scholarships and loans. The decisions you make now will affect the rest of your life.

Learning how to manage money is a lifelong process. However, the sooner the child adopts a set of financial habits, the more likely he is to achieve financial success.