11 Financial Words All Parents Should Teach Their Kids

Tim CurvanAugust 20, 2015

Financial Planning

We recently wrote a piece for the HFA Blog titled “Planning a Family Meeting”. The message focused on the importance of keeping  children involved with regards to the parents’ wishes as they age. This article today highlights young children to help them become more financially educated.  Follow the timeline and the 11 financial words that parents can teach their own as they mature.

11 Financial Words All Parents Should Teach Their Kids

By: Jennifer Ryan Woods, Forbes Contributor

If there’s one subject that has the ability to impact kids throughout their entire lives, it’s personal finance. Unfortunately, it’s a subject that no one wants to teach them.

“The practicality of teaching [finance to kids] is so important…it’s the one topic that they’ll actually use for the rest of their lives, everyday. But it’s the one topic that isn’t really taught,” says Gregg Murset, chief executive of My Job Chart, an online tool that teaches kids about responsibility, managing money and helping charities.

Because most schools aren’t teaching finance, the responsibility falls to parents. But many parents are reluctant to broach the subject, often because they don’t feel qualified or they think talking about money will make their children worry. In a recent study 72% of parents reported at least some reluctance talking to their kids about finance. But that doesn’t mean they don’t want their kids learning it — 91% believe it’s appropriate for kids to learn about financial matters in school and 75% said there should be a personal finance requirement to graduate.

Teachers agree — in a separate study 89% said students should take a finance course or pass a competency test for high school graduation — but only 29% of teachers are actually teaching it. There’s been some progress getting more public schools to make courses mandatory, but it’s far from being a standard part of school curriculum, which means the onus is on parents to ensure their kids have, at the very least, a basic financial understanding.

The following is a list of terms that experts say every kid should learn. It includes the age at which kids can generally being to understand the concept as well as an age-appropriate explanation that parents can use. (Even if your kids are into their teenage years, it’s never too late! Go through the list to make sure they have a good understanding of each term.)

1. Saving(s): Age 4+

Saving is one of the best topics to introduce at a young age. It’s easy for kids to grasp and can have a huge impact on those who embrace it early. “Saving means not using all of your money right away, but instead putting it aside for later,” says Stacy Francis, president and chief executive of Francis Financial.

There are plenty of examples parents can use to illustrate, here’s one: Start by giving your child two small pieces of candy during the day. Let them eat one right away and save the other until after dinner. Then each day for a week, give them two pieces  but have them save one in a special place. When the week is over, they’ll be excited to have a bag full of candy. Explain that saving money works the same way — when you regularly put a little bit aside, in time it will add up to something big.

2. Budget: Age 8

A budget is a plan that you make to keep track of your money and where it is going. One great way that a lot of parents teach kids how to budget is with “give, save, spend jars.” Whenever the child earns money they divide it between the jars. The “save” jar is money that’s intended for a longer-term goal; money in the “spend” jar can be used any time for smaller purchases; the “give” jar is money that will go to a charity of their choosing. The give jar, in particular, is great for getting kids to think about helping others while allowing them the freedom to choose where to donate their money.

Niv Persaud, founder of Transition Planning & Guidance says it’s also a good idea to get kids involved in the family budget, or “spending plan” as she calls it. “Involve your kids in developing a spending plan for an upcoming vacation. Let them see how you budget and save for these memorable trips. Start with small tasks and as your kids grow, expand their role. Once you’ve selected a destination, ask them to calculate how much you need to save for travel, food, lodging and entertainment. When you’re on vacation, ask them to keep track of spending.”

3. Loan: Age 8

A loan is something that is borrowed, often money, which has to be paid back with interest (See #5 below). Most kids get the basic concept of a loan because chances are, at one time or another, they’ve lent something to a friend or sibling and expected to get it back.

Start by explaining some of the reasons people take out loans. For instance, because it costs a lot of money to buy a house most people borrow money (take out a mortgage) to pay for it. Even kids know that $300,000 is a lot of money, so when they hear that’s the average price of a house they can understand why most people borrow money to cover it. Car loans and student loans are also good ones to discuss – especially the latter for kids who will be taking out student loans to pay for college.

While taking out a loan isn’t a bad thing, parents need to stress that when you do take on a loan, it’s your responsibility to pay it back.

4. Debt: Age 8

Loans and debt can be explained together. Like a loan, a debt is money that you owe someone that needs to be paid back. Once again, a mortgage can be a good way to illustrate how debt works. (Other types of debt, such as credit card debt, can be introduced a bit later on — See #6)

Murset says parents should  discuss their own mortgage with their kids by explaining that they borrowed money – took on debt – to buy their house and that they need to pay it back a little bit each month. He adds,  it’s critical to show the kids the mortgage statement so they can see how much is paid each month and the interest. That way they can see the cost associated with debt and that it never goes away until it’s paid off.  Murset says, “kids need to understand that once you have a debt, it doesn’t go away until you’ve taken care of it.”

5. Interest: Age 8-10

Interest has two sides: it’s either something you pay when someone lends you money or something that you earn when you lend money to someone else. Elizabeth Grahsl, Vice President of Prosperity Bank says, you would earn interest if, for example, “your sister runs out of her allowance but needs money this weekend. You could lend her $20 but charge her $2 in interest, which she will have to pay you back next week.”  You can also make it into a game to illustrate how it works: Ask to borrow a few dollars from your child’s piggy bank and then set up a schedule to pay it back over the next month with interest.

Grahsl adds, “explain to older kids how you pay the bank interest on your car loan or mortgage each month. Also point out that the bank pays you interest on deposits you gave them.”

When kids are older and can calculate simple percentages, have them do some math to see how interest adds up. Show them a credit card agreement that charges 15% interest and have them figure out how much extra money you would have to pay to carry a balance of $5,000 or $10,000 on your credit card, versus if you paid it off right away.

6. Credit/Credit Card: Age 8-10

Credit lets you buy something without having to pay for it right away. For example, if you use a credit card to buy a new bike that costs $200, the money doesn’t come out of your bank account. Instead the credit card company pays for the bike. Then they send you a bill and you have to pay them back the $200. If you don’t pay them back right away, they will charge you extra money (interest).  The longer it takes you to pay back, the more money you will owe in the end. While credit cards are necessary to have — you can’t buy a sandwich on a plane without one — kids need to understand that they should only be used to buy things that  they can afford to pay off right away.

If you’re at the store with your child and they forget their money but they  absolutely have to have that special toy, let them borrow the money, say $10. Tell them, however, that they have to pay you back right away when you get home. If they don’t, start adding on interest and continue to until they’ve paid you back.

Parents should also explain how a debit card is different as it takes money directly from your checking account. Murset suggests referring to debit cards as “money suckers.”  “When you’re at the store and you slide the debit card, explain that the card is sucking the money right out of your account at that very moment.”

Click here to read the remaining financial words


We teach our young children many things in life. These 11 words and concepts are designed to teach our children the importance of finances. The opportunity, as with many things, is most beneficial if started early.  We know the importance of education and hopefully this article can be a catalyst to help you teach your loved one’s at a young age the importance of their finances. Feel free to pass this article along to anyone else you think would benefit from this valuable information!