What Should Kids Know About Money by Age?
A Simple Guide for Every Stage
About two years ago, we started house-hunting. With two kids and a dog, we’d really outgrown our “starter home.” We saw a few houses with our realtor, bringing the boys along so they could see them, too. It didn't take long to realize that the house we actually want–the one with the bigger yard and more bedrooms and the zip code close to school–doesn't fit in our budget right now. So we decided to stay put and keep saving for a while.
Every so often, one of my boys circles back to it. When are we going to get a new house?I want a bigger yard.Can we go look at more houses? We remind them that we're staying put for now, that we want to save more before we move, that finding the right house isn't just about finding the one with everything we want. We want to land somewhere that makes sense for our finances, too.
Explaining a housing budget to little kids is…not exactly straightforward. They both offered to give us the money in their piggy banks to use toward a new house. So, so sweet. But, really not that helpful.
It’s taken (quite) a few tries and conversations, but I think they're sort of getting it. Actually, I've been surprised by how much they're able to understand.
Research published from the University of Cambridge found that some financial habits are established by age seven, which is earlier than most parents would guess. It’s earlier than I would have assumed.
So here's my take, as a mom and as a teacher, on how we can help our kids grow their money skills.
Ages 4-7: Little Learners
At this age, experience is what matters most. Kids pick up money habits primarily through observation and hands-on action, not through formal explanation. This range is where my kids are, and right now, I’m focused helping them understand some key concepts:
Money is earned. It doesn’t just appear. The ATM is not a money machine, and the card in your wallet doesn't come with unlimited funds. This isn’t something that’s obvious to young kids, but it’s pretty easy to explain. Letting them see you use cash, hand over payment, or count out money at a register makes the concept real in a way that a conversation alone cannot.
Whenever I need to grab some cash from the ATM, I make a point of talking to my kids about how the machine works. I explain, “It’s like a computer and it’s connected to mommy and daddy’s bank account. We earn money from our jobs and we keep that money in our bank. When we need cash to spend, we can go to the bank or use a machine like this.”
Needs vs. wants. Young kids can understand that there are some things that we need–like a house and food to eat–and some things that we want–like a cool new toy or ice cream after dinner. Understanding the difference between needs and wants is a foundational financial concept. This is the basis for how we choose what to spend money on. As the grown-up, you make choices about how to spend money for the family.
We need a place for our family to live; we want a new house, but it doesn’t make sense right now. Kids can start to understand that.
Ages 8-11: Building on It
This is when the conversations start to get more interesting. Kids in this range are beginning to think more independently and are ready to move beyond the basics.
How to budget a small amount of money. Allowance, birthday money, gifts from grandparents: kids this age have real money and can make real choices about how to use it. This is where they start to be more thoughtful about money, and where they can experience the consequences of spending everything at once.
Comparing prices and understanding value. This isn't about choosing the cheaper option. Kids in this range are ready to start deciding whether a purchase is actually worth what it costs. A $10 toy that breaks in two days probably doesn’t have the same value as a $10 book they'll read over and over again. Or, to them, maybe it does. That’s the cool part: they get to start making the decisions.
Ages 12-14: Leveling Up
Kids this age are ready to have practical conversations and start building concrete money management skills that they can use for life.
Opportunity cost. When they choose to spend money on one thing, they’re choosing not to spend it on something else. That trade-off is a part of every financial decision that they’ll make. They can start practicing these choices while the stakes are still pretty low.
What interest means in both directions. If they keep their money in a savings account, they’ll earn interest–more money. If they use a credit card and miss a payment, the interest will add up and cost them money. They might not be ready for a credit card at this age, but using something like a high-yield savings account can help them start to understand how interest works.
You don't need a finance degree for any of this. You teach your kids table manners without a certification in etiquette. You help them learn to be a good sport without ever having coached professionally.
We’re still house-hunting, though pretty casually at this point. We’ve considered what we need versus what we want, talked through our budget and the value of what we’re looking for, and are making sure to save up for a down payment to minimize the interest we’ll have to pay.
These are real skills that we are using and that our kids can learn, too. There’s no need for hypotheticals or games. There are plenty of real-life situations that we can use to help our kids develop these important financial skills.
