I’m wrapping up editing my lyrical children’s book Scruffy Muffin Loses His Money. It’s a project I’ve been working on with my kids as a way to help them learn about all the different things you can do with money. They created most of the story. I took what they told me and put it in rhyming form.

This summer, we will be writing a second Scruffy Muffin book. As a fun way to start thinking about what will happen to Scruffy Muffin and his money in this new adventure, I decided we would do a fun financial literacy project where I ask my kids various questions about money and record their answers. My oldest son wants to be a “YouTuber” (his words - he’s eight years old!) so both boys were pretty excited when I told them I would share the videos on my YouTube channel later this summer.

The things you can do with money fall into six main categories and this is what I use as a starting point when I’m talking with my boys about money. The categories are earning, saving, spending, sharing, investing, and borrowing.

Here are a few tips for starting discussions and teaching your kids the basics of money.

Earning

The easiest way to teach kids how we earn money is to show them how they can earn their own. This can be in the form of an allowance, odd jobs, garage sales, lemonade stands or other business ideas, and even a job like a paper route or babysitting, depending on the child’s age.

Allowing kids to earn money gives them a sense of accomplishment and shows them how we can exchange our skills or belongings for cash.

Saving

Introducing the concept of saving money usually starts with a piggy bank. Many children have a piggy bank from a young age. The key with saving money is to explain the purpose of the piggy bank. It’s not just a spot to keep your money, but it’s a spot to keep money you don’t want to spend right away.

If your child gets an allowance or has a job, you can encourage them to save a certain percentage or dollar amount each time they get paid. It’s even better if they have a goal they are working towards (like a new toy) so you can track how much they’ve saved towards the goal each time they put something in the piggy bank.  

Spending

As kids get older and start understanding that we trade money for the things we want, they will start asking you to buy them things. This is the perfect time to talk to them about spending habits. If we spend our money on one thing, we don’t have it to spend on something else, so it’s important to take some time to think about what we are buying. This is also a great time to think about giving your kids an allowance.

Allowances are a great tool for kids to learn about money management. The trick, as a parent, is to be prepared to let your kids learn their own money lessons. If they lose their allowance because they didn’t put it in their piggy bank or wallet, they will learn a valuable lesson. You have to be prepared to let them learn that lesson.

Sharing

Sharing money refers to donating to causes you believe in. Schools often have fundraisers. If your child is school age, this is a great time to start a discussion. You can explain that if everyone gives a small amount, the school will end up with a much bigger amount they can use for the important things they need.

Donating gently used toys and books to local charities is another great way to start a discussion around sharing.

Investing

The key concept involved with investing is the idea of compound interest. If you open a savings account and leave your money in there year after year, you will earn interest on your interest as well as the original deposit you made. This makes opening a savings account for your child a wonderful introduction to investing. Be sure to explain to them that they earn money just for leaving their money in the account.

If your child is older, there are lots of compound interest calculators online where you can show them how their money can grow over time.

Borrowing

Interest is also a key concept when it comes to borrowing. My kids are only six and eight and they have each asked to borrow money from me to buy toys. When I do agree to this, I make sure to charge them interest and explain to them that when they borrow money to buy things, they end up paying more than they would if they had the cash because of the interest.

Depending on the age of your kids, this is might be the perfect time to explain the idea of credit cards. One of my favourite books for teaching kids about money is Gail Vaz-Oxlade’s Money-Smart Kids. She talks about making a credit card for your kids when they want to borrow money from you so they understand the concept as well as what happens when you don’t pay the balance off every month.

I love using books to explain things to my kids. It’s the main reason why I started writing the Scruffy Muffin series with my boys. The most important thing when it comes to teaching your kids is to meet them where they’re at. Start at their level with concepts they will be able to understand. The biggest sign your kids are ready to start learning about money is when they start asking questions. Answer them as honestly as you can.

Let me know in the comments if you have started teaching your kids about money and how it’s going. I love hearing about what other families are doing.