When children begin negotiating for things they want and find themselves stymied, they often ask parents: What is money? For many children, money is the mysterious thing that keeps them from getting what they want. It may prevent the family from taking a vacation trip, getting a pet, or buying a larger home.

Sometimes, not even adults know the answer. Money is a pretty abstract concept. So  would we expect our kids to understand its value, its importance, and its fundamental role in contemporary society? Well, we can’t really expect that. You may try to make your kids aware of the responsibility money brings. Then you understand just how difficult it is to teach them about it.

And it’s not just as simple as giving money to your kids. Or using money everywhere in front of your kids. I personally remember never understanding why a piece of paper could have such a great value for everyone. Always the dreamer, I thought that concrete things were much more valuable. After all, they produce more intense feelings. Although I may not have thought about it in those terms.

"what is money teaching kids"

Kids must learn the power of the dollar bill at a young age if you want them to be responsible.

Money Anxiety in Children

I remember also feeling the pressure of money. I knew that there were things we, as a family, could afford. Then there were – obviously – things that we couldn’t afford. And it all came down to whether the parent was for or against satisfying my every whim. As a boy, back then, it’s only natural that I was interested in robots. But I soon learned that some robot toys were more expensive than others. Gradually, I began saving my own money until was able to buy what I wanted.

Such is the order of things. That’s how I learned about it. And that’s how your kids can learn about it. But you don’t have to do exactly that. Don’t worry. We’ve put together a small step-by-step guide.

How to Teach Your Kids about Money

When your kid starts asking, what is money? that’s when you know you’re in for trouble. It’s a long and bumpy road from the very first mention of money during your child’s development. It continues long past the point where he or she understands it. Experts mostly agree that there are three stages in which a kid comes to understand money. And these three stages mostly depend on your child’s age.

Therefore, for a younger kid, probably up to the age where he will be able to read and write, money should be something that’s ‘there.’ Meaning that you should never refrain from using money around him just because of his or her age. You won’t help his imagination, as he will think that nothing has a price. Therefore, he’ll begin to think he is entitled to everything.

Teaching Older Children about Money

For an older kid, the stage of explaining sets in. Presumably, this is exactly the point at which you will get to hear the question mentioned above. What is money? First of all, think how you would answer that question for yourself. Imagine that an adult doesn’t know the meaning of currency. How would you explain to an adult how the flow of finances works? Now transpose that to the language of a 7-year-old.

The last stage in teaching a kid about financial responsibility and money is the point at which they themselves will have to use money. Begin trusting your kid with more and more complex tasks involving money. Start out by sending the kid to the store to buy fruit, and end by letting the kid make bill payments online. Obviously, the latter stage should come when the kid is already in high school.

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A dad and his son dealing with money problems together.

These three points in a kid’s education about money and finances are paramount to his understanding of how the world works. But you may be left saying: Hey, you didn’t actually answer the exact question. And you’re right. The number two stage is by far the most complicated. How many of us can actually give a straight answer to the question of what is money?

Well, we’ve put our brains to the test, and have come up with one possible solution. You can use the next part as a general template for explaining money to your kids. Remember that if you want your kid to develop his skills to make money, he first has to understand money. What is earnest money, what job makes the most money, and even what is a money order. All these questions and more can be tackled much in the same way.

A Possible Answer to the Question of What is Money? for Kids

Pulling a few bills out of your wallet, you say:

“This is money. You may ask ‘what is money made out of?’ Well, it depends on the country. In the U.S., money is made out of a special type of paper. Other countries use plastic. Then there are coins, which are mostly made out of copper and nickel. But enough about that.”

Making Decisions About Money

“If you take this $10 bill, you can go to the store and buy milk, bread, and a lot of other foods. Food is one of the basic things you spend money on. However, with the same $10 bill, you could buy a toy. Or you could pay the bills, so that you can have electricity, heat, and all those other necessities. Every month, Mom and Dad need to make decisions like these.”

How Do We Use Money?

“Everybody in the house needs to eat. So we have to give money for that. Everybody in the house needs electricity, internet, and other utilities. We need money for that as well. After paying for all our basic needs, we get to the rest of the money. You see, Mom and Dad have a salary. A salary is the money we get every month for work. Our salary is designed so that we’re able to pay all we need to pay, and still have something extra.”

Setting Priorities

“It’s up to us to decide what we do with the rest of the money. And most of the time, the things we need leave us with not that much money to spend. And even when we do have enough: we still can’t buy everything everyone in the family has ever wanted. So you need to make an imaginary order in your head of what, when, and how much to buy.”

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Remember not to give kids the feeling of financial insecurity. It can lead to depression.

And that’s basically it. Now, you’ve answered most of your kids’ concerns regarding “what is money.” However, there are many other financial issues to tackle in order to make your kid a responsible adult and begin earning a bit of money for himself. If you’d like to find out more about this, you’re in luck! We’ve got an entire series of articles specifically dedicated to this. Check them out here.

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