How do we introduce kids to the real costs of living? Every parent has heard the simple, sometimes-dreaded question: “why…?” When that question ends with “…can’t I have the newest toy/my favorite snack/an ice cream outing after dinner every night this week?” you might just feel like pulling your own hair out. It’s called a budget! But little kids aren’t born knowing that everyday items cost money, or that money is a limited resource. Instead of pulling your hair out in frustration, start introducing the idea that day to day expenses come with a price tag that mommy and daddy—and when they grow up someday, your kids themselves!—have to pay.
Use cash, not credit cards.
Little kids can’t grasp exactly what is happening when you swipe a credit card at the cash register. Credit cards are shiny and plastic—they look more or less like toys! It’s better to use cash and coins. Or, something with printed numbers on them that kids might be able to comprehend, depending on their ages. Kids learning addition and subtraction can help you count out change to pay at the coffee shop or supermarket.
When coming up with examples, start with their favorite things.
If you’re trying to give a sense of how much items cost, start with things they really care about. Their favorite toy (or the toy they really want to buy!) will make a bigger impression than their least favorite vegetable. You can even explain the costs of services, like Netflix or cable, which they may think magically show up in your house for free. Explain that actually, access to their favorite TV show has a price tag that mommy and daddy pay for.
Then, move onto items they need—but make it a game.
It may not hold their attention as well as, say, the book they asked you to reader and over again. But, engage kids in a game of guess-how-much-this-costs with items they care less about, to keep it fun. This can also be a great way to teach about relative costs. Ask kids to guess which costs more—a pizza or a pair of socks. You may discover something about your kids’ value systems when they think the TV costs more than the car! This can be a great way to give them a more adult perspective on cost vs worth, and real costs of living.
Make them choose between two purchases.
An important lesson is to teach your kids about money is that it’s a finite resource that needs to be budgeted. We can’t just spend, spend, spend or we’ll end up dangerously in debt! Instead of just repeating “money doesn’t grow on trees,” demonstrate it. Hand your child a physical denomination of money—say, a $5 bill—and have them spend it on snacks at the shop. They’ll probably want more than their small budget allows, but show them that when the money is gone, it’s gone. They’ll start having to make “tough” choices.
Have an at-home store for school supplies or special treats.
It’s easy for kids to assume that the “basics” will be provided for them. They take it for granted that you, as the parent, will supply what they need. So, it’s easy for them to ignore the fact that actually, those “necessities” cost hard-earned cash. To give them a sense of how you have to budget for the basics, set up an at-home store. Use it for things they use or have to replace regularly. Add pens and pencils for school, afterschool snacks, or extracurricular activity supplies like drawing paper for art class or sports equipment for soccer practice. You can either give them actual cash to spend on these items over time, or have a points system. Be sure to have lots of conversations alongside giving them an “allowance” for these items, to help set them up for “budgeting” success.
As your kids get older, teach them the relative costs of bigger purchases.
A five year old may not be able to comprehend large amounts of money, like how much your house costs. But, a teenager has a lot more context. Plus, older kids aren’t too far off from making their first big purchases themselves. Think: their first car, college tuition, or a self-funded spring break trip with their friends. To give them a better sense of how much these big ticket purchases cost, start having conversations with them about your experience of these costs before they’re faced with the decisions themselves. If you feel like the numbers are still too vague for your kid to grasp, try breaking down big dollar amounts into smaller chunks. If college tuition is $x per year, how much does that cost per semester? Per day?
Bonus: explain why inflation means investing is key.
Kids won’t find out about inflation unless somebody explains it to them. And since personal finance isn’t taught in most schools these days, it’s up to you. Bring inflation into the conversation about real-world costs. Explain that over time, the same item—like a postage stamp or a gallon of milk—will become more expensive. The cost of living, day to day, increases year by year. In order to keep up with this inflation, we have to earn more money over time and also invest our savings in the stock market or elsewhere. It’s the only way to keep up with the those everyday expenses long-term.
Though some of these conversations are better suited for older kids, the basic idea—that day to day purchases add up, and nothing is free—can be introduced from a young age. It’s important for kids to start realizing the real costs of living. In the end, it’s all about making money relevant to your kid’s life, whatever age or stage they might be in.