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What Your Five-Year-Old Needs To Know About Money

Yeah, Money Buys Things

When's the right time to teach kids about money? How young is too young? According to an article in Forbes, five is probably the magic number. Or as soon as they realize "money buys things."

If all your children sees is the magic swipe of a plastic card and doesn't get that you actually have to have credit behind that piece of plastic, then it may be time to open up the discussion. 

A CFP and senior financial planner at T. Rowe Price, Stuart Ritter says we aren't teaching our kids enough about money. And that education has to start earlier. 

Ritter provides these tips for learning about money at each stage.

At five, your child should know the following terminology: 

  • "Savings Goal – a savings goal has three elements: (1) what you want to buy, (2) when you want to buy it and (3) how much it will cost at that time.
  • Bank – a place that helps us safely store, organize and manage our money
  • Check – a way to pay for items where we write a note asking our bank to send our money to someone to pay for our purchases
  • Bills – notes letting us know how much we owe for our purchases
  • Trade Off  – A decision we have to make when we are considering whether to save for something or spend our money."

Click here to view tips for kids age 10 and up

Ritter imbued his own children with a reality check when they unanimously agreed to buying a new, larger vehicle. He explained that in order to do so, the cost of the car would be offset by what the family would usually spend on a beach holiday. Needless to say, suddenly his kids weren't so enthused. (Lucky them, to have a financial planner for a dad!) 

“It’s not about saving for the sake of saving. It’s about spending choices and figuring out if you should spend now or spend later. It’s about teaching priorities and trade-offs,” said Ritter.

Are your kids financially savvy? Is five a reasonable age to start teaching kids about money?