Money management for children

Money management and financial literacy: why they’re important for children

Money management is earning, saving, spending, borrowing and repaying money.

To manage money well, you need financial literacy. Financial literacy is the ability to manage money in ways that help you achieve your goals in life.

Money management and financial literacy are important life skills, which even young children can start learning. You have a big role in helping your child build these important skills.

Learning about money and developing financial literacy from a young age can help children develop responsible money habits and attitudes for later in life.

Money management concepts for children

Basic money management concepts for young children include:

what money looks like
where money comes from.

As children get older, you can introduce them to more complex concepts like:

what money is for – needs and wants
how to use money wisely – budgeting and saving
how to get value for money.

You can help your child learn about these concepts by talking, role-modelling, playing and practising money-related skills together.

Financial literacy is closely linked to general literacy and numeracy skills. For example, children need general literacy and numeracy skills to read price tags and add up costs. As your child’s literacy and numeracy skills develop, your child can apply them to money management decisions.

What money looks like

Knowing what money looks like is the basis of money management skills for young children, because it helps them understand that money is a real thing with real value. This is especially important if you often use digital money, which young children can’t see.

Here are ideas to cover with your child:

Physical money is notes and coins.
Digital money includes debit cards, credit cards, gift cards and online transactions.
Digital money can become physical money, and vice versa.

It’s good to introduce your child to physical money first. Once your child can add and subtract, you can introduce them to digital money.

Ideas for play and learning

Show your child different notes, coins and cards. Talk about their names, shapes, sizes, colours, values and symbols.
Help your child order coins and notes from smallest size to biggest size, and then from smallest value to biggest value. Explain that although a 50c coin is bigger than a $2 coin, it isn’t more valuable.
When you go shopping, give your child money to pay at the cash register. If you’re using notes or coins, count the money and change out loud together. As your child gets older, let them take their own money and encourage them to pay under your supervision.
Show your child how you withdraw money from an ATM. Let your child enter the amount or tap the card and pick up the money when it comes out.
Show your child your online account balance before and after you make an online purchase. You child will see how the balance changes.
Show your child your receipts. Talk about the items on the receipt, their values and the total amount.

Be guided by your child’s curiosity and questions. If your child shows an interest in money, use it as an opportunity to have a conversation about how money works and what money is used for in society and your family’s life.

Where money comes from

It’s important for your child to know that the money your family uses to buy things comes from somewhere – for example, from your work, the government and so on.

Ideas for play and learning

Explain where you get your money. Show your child your bank statement or your online account so they can see money coming in.
If your child gets money for their birthday, explain that this happens only on special occasions and it’s not an everyday way to get money.
Give your child pocket money.
If you want to introduce the idea of getting money in exchange for work, consider other ways for your child to earn money – for example, selling homemade craft or food, washing the family car or cleaning windows.
If you’re having a garage sale, encourage your child to collect up their old and unused toys to sell.

Reading books is a fun way for your child to learn about money. Here are book ideas to get you and your child started – A chair for my mother by Vera Williams, One cent, two cents, old cent, new cent: all about money by Bonnie Worth, and Ask Hercules Quick by Ursula Dubosarsky.

What money is for: needs and wants

Money is for buying the things we need and want:

Needs are things your family must have to survive.
Wants are things that are nice to have but your family can live without.

When children understand the difference between needs and wants, they can start learning about basic budgeting and saving. This is about spending your money on the things you need first. If you have any money left after buying what you need, you can spend it on things you want or you can save it.

Ideas for play and learning

Get your child to look at a shopping catalogue and highlight which things are needs for your family and which ones are wants.
If your child is older, get them to write a list of their own needs and wants. Or you could make a supermarket shopping list together and talk about which things are needs and which are wants.
If you donate money to a charity, use this as an opportunity to discuss how you’re helping people who don’t have enough money to meet their needs.
Talk about how advertising tries to influence our needs and wants.

Children learn a lot about money management from watching how you use money in your everyday family life. You can influence your child’s attitudes towards spending and saving by using money responsibly.

How to use money wisely: budgeting and saving

Budgeting is deciding how much money to:

spend on your needs
spend on your wants
put aside for things like savings and emergencies.

Ideas for play and learning

For younger children, set up money jars with labels like ‘spend, ‘save’ and ‘give’. Encourage your child to make decisions about where their money goes. Watch how the money grows when they don’t spend it and shrinks when they do.
As children get older, set up a family-friendly, safe mobile money app. You can use these apps to track savings and spending over time. Encourage your child to check the balance regularly to see how the balance changes as money goes in and out.
Encourage your child to think of short-term and long-term savings goals. For example, a short-term goal might be a new handball and a long-term goal might be a new Lego set. Together you could find out prices, weigh up priorities, and come up with ideas to help your child reach their goals.
Involve your child in planning and budgeting for the family. For example, if your family is thinking about getting a pet, consider together the one-off costs and the ongoing costs for food, toys, check-ups and so on.
Celebrate when your child reaches their savings goals. You might also consider paying them bonus amounts for reaching their goals.

Keeping money safe is an important part of money management. You could talk with your child about how to look after wallets or savings jars so they don’t get lost. You could also cover safety precautions for digital money like PINs, passwords, online security, in-app purchases and so on.

How to get value for money

Getting value for money depends on first understanding the value of things. For children, this starts with understanding:

why different things cost different amounts – for example, why a fridge costs more than a toaster
why the same sorts of things can cost different amounts – for example, why one brand of muesli bars costs more than another
why you might choose an expensive item over a cheap one – for example, why it might be better to buy a wooden rather than a plastic toy
why you might buy things on sale.

Ideas for play and learning

Explain your purchasing decisions to your child. For example, ‘Yes, this brand of cereal does cost more. But it has a lot of tasty, nutritious nuts in it and is lower in sugar, so I don’t mind paying a bit more’.
Let your child practise in real-life situations. For example, ‘We need 2 litres of milk. A 1-litre bottle costs $2. A 2-litre bottle of milk costs $3.50. Which bottle is better value?’
Give older children more responsibility for purchasing decisions. For example, give your child $20 and a shopping list, and help them browse an online supermarket catalogue. Ask them how they’d buy the things on the list.

Children explore the world through play, so play offers many opportunities for children to practise money management. For example, you could set up a play shop, restaurant or bank. Older children might have fun playing Junior Monopoly.