We can’t tell you how many times we’ve heard parents say, “They should be teaching kids about finances in school. It’s one of the most important skills they can learn.” Well, this is absolutely true. Some school systems make this a priority, which is fantastic. If not, there are many resources you can turn to. They will benefit for years to come. We have created this post as if we were speaking directly to kids. From this, you will find a downloadable booklet that might help to start some thought and discussion. Best wishes to you and your family on this journey of learning to manage their finances. We believe it will be rewarding.

Financial Literacy for Kids is one of the most important skills they will learn.

Managing money is a critical skill that’s best learned early in life. As children, you might come across things you want to buy, like a new video game or skateboard. Whether you’ve heard it from your parents or not, the advice often stands: save your money, and eventually, you can afford what you desire. Today, I will guide you through the basics of financial literacy to help in differentiating between what you need versus what you desire and how to handle money wisely.

Together, we’ll explore how to earn, save, and responsibly spend money. Recognizing the distinction between needs and wants is the first step to being prudent with your finances. Furthermore, I’ll introduce you to creating a budget, which is not only a plan to manage your money but also a path to living within your means and steering clear of debt. As we proceed, we’ll discuss the value of saving over borrowing, and understand the different types of bank accounts and their purposes.

Key Takeaways

  • Financial literacy empowers you to distinguish between needs and wants, aiding in responsible money management.
  • Creating a budget and understanding different bank accounts are essential skills for effective financial planning.
  • Learning about savings, loans, and the use of credit and debit cards is crucial for making informed financial decisions.

Gaining Clarity on Fiscal Concepts

Clarifying Critical Fiscal Terminology

To enhance your grasp on handling money smartly, it’s crucial to define specific financial concepts. Income refers to the funds you earn or receive as a present. Expenses are the funds spent. Understanding these terms is a cornerstone in shaping your financial awareness.

Distinguishing Essential from Optional Expenses

Recognizing the divide between essentials for living, like nourishment and shelter, and non-essential pleasant extras—like games or gadgets—is vital in making prudent financial decisions. This distinction aids in managing your resources wisely.

Evaluating Saving Against Borrowing

Setting aside funds for later use and restraining from immediate use is known as saving, a necessary skill for achieving long-term goals. Borrowing, or taking out a loan, entails acquiring funds that you’re obliged to repay, often with an additional cost known as interest.

Debit Compared to Credit Usage

Understanding the difference between debit and credit is fundamental. Debit transactions draw directly from your bank funds, either from a savings or checking account, while credit transactions involve borrowed money from a financial institution to be paid back at intervals with interest.

By embracing these concepts, you fortify your financial literacy, paving the way towards cultivating beneficial money habits as you grow.

Effective Financial Habits

Crafting Your Fiscal Plan

Budgeting is the roadmap of your financial journey. It involves predicting your earnings, which can come from various sources such as allowances or gifts, and matching them with your outgoings. A well-structured budget assists you in staying on track and prevents you from overspending beyond your available resources.


  • Predicted Earnings (Allowances, Gifts)


  • Essentials (Food, Water, Clothing, Shelter)
  • Non-Essentials (Toys, Games)

By differentiating between the necessities of life and the extras (needs and wants), you cultivate financial literacy for kids. This conscious awareness helps you allocate funds wisely.

Navigating Through Owed Money

Managing debt is about understanding the commitment when borrowing money that needs repayment. Loans often come with interest, an additional percentage on top of what you borrowed. Effective debt management means careful consideration before taking on a loan and strategizing for timely repayment to minimize the extra charges from interest.

Loans and Interest:

  • Loans should be for substantial purchases (House, Car)
  • Payback includes extra fees (Interest)

Understanding the differences between savings and checking accounts is crucial, as savings accounts accumulate interest, increasing your funds over time, while checking accounts facilitate immediate transactions without interest. Being informed about the basics of borrowing, like the distinction between credit (borrowed funds) and debit (owned funds), is part of nurturing your financial literacy for kids.

Fundamental Principles of Banking

Understanding banking is an important leg of financial literacy for kids.

Essential Information about Different Bank Account Types

Bank accounts are tools for managing your money and come in various forms, each suited for different financial needs.

Understanding Savings Accounts

Savings accounts are designed for long-term storage of your funds, incentivizing you by increasing your balance through interest earnings. It’s money you tuck away, typically not meant for daily expenses, earning a percentage based on your account balance over time. Think of it as a nest egg that slowly grows, nurturing your financial future.

Fundamentals of Checking Accounts

Checking accounts serve as your financial day-to-day operatives, handling your transactions like bill payments and purchases. Unlike savings accounts, they usually do not offer interest earnings. They facilitate immediate access to funds through checks or a debit card, connecting directly to your available balance for swift, seamless payments.

Savings Vs. Checking: Key Differences

While both account types safely hold your money, they serve distinct purposes in financial literacy for kids. Savings accounts are your go-to for accumulating funds and reaping the benefits of earned interest. Checking accounts, on the other hand, are practical instruments for managing daily spending without interest growth.

Remember, a budget is essential in overseeing your finances. Understand your needs—essentials for survival—and wants, items for enjoyment but not necessary. Balancing these, alongside regular saving, builds a solid foundation for your financial literacy and future stability.

Engaged Learning in Finance

Quiz on Financial Knowledge

  • True or False: Savings and checking accounts serve identical purposes.
    False. Savings accounts are intended for accumulating funds over time and earning interest, whereas checking accounts are designed for everyday transactions and bill payments without interest accumulation.
  • Complete the Statement: A ___ is a strategy for overseeing your finances. Answer: budget

Hands-On Money Management Activities

  • Distinguishing Needs from Desires:
    • Need: Essential for survival (e.g., food, water).
    • Desire: Nice to have, but not essential (e.g., video game).
  • Budget Planning: Create a mock budget using this simple table: Estimated Income Estimated Expenses Savings Goal $ allowance $ snack $ toy
  • Understanding Saving and Borrowing:
    • Piggy Bank Exercise: Allocate play money for future purchases.
    • Interest Illustration: Calculate interest earned on savings and paid on loans using different rates.

Financial literacy for kids is crucial for fostering sound financial habits as you grow. Engage in these activities to enhance your understanding and proficiency in managing money effectively.

Advancing Your Knowledge in Money Management

Education on handling finances is a large part of financial literacy for kids.  Then they can start putting their knowledge into practice.

Educating Yourself on Handling Finances

Managing finances isn’t just for adults. It’s essential for kids to grasp the foundational aspects that help in making smart monetary decisions. To manage your money effectively, develop an understanding of what must be met for your survival, such as basic necessities—food, shelter, attire, and hydration. Recognizing the distinction between essentials and nice-to-haves, like toys and games, equips you with the capacity to allocate your funds sensibly.

Crafting a financial blueprint supports you in overseeing your money. This involves tallying up your earnings and subtracting the sum you spend. The aim is to ensure you’re not expending more than you obtain. This financial blueprint steers clear of debt, which is funds borrowed that must be repaid.

Saving Versus Borrowing

Savings and loans are two sides of the financial coin. When you save, you’re piling up money for later use, rather than spending it immediately. You might tuck away cash in a piggy bank or a savings account, which interestingly, can accumulate a little extra—interest earned from the bank.

Loans, however, come with a cost. Borrowing money, such as for big-ticket items, typically attracts interest. This means you pay back more than what you initially borrowed.

Understanding Bank Accounts: Savings & Checking

On your financial journey, know that a savings account is not just a stash spot for your money. It’s a wealth builder, rewarding you with interest. Conversely, a checking account allows for the settlement of bills and everyday expenses but doesn’t offer interest gains.

Credit versus Debit

Using a credit card has its subtleties. It involves borrowing funds from the issuer with the plan of regular repayments plus interest. Meanwhile, debit cards pull from resources you’ve already accumulated in your accounts.

Taking Charge of Your Financial Education

Grasping these principles is the cornerstone of financial literacy for kids. Reflect on what you can enhance in your monetary habits and continue educating yourself.

  • True or False: Savings and checking accounts are identical.
    • False: Savings accounts aim for long-term savings and gain interest, whereas checking accounts facilitate bill payments without interests.
  • Fill in the Blank: A budget is a plan for managing your money.
  • Needs vs. Wants:
    • A need is indispensable for existence.
    • A want is enjoyable but not vital.

Great work developing your understanding of finances. Visit educational platforms for more resources in strengthening your financial literacy.

You can download a copy of this guide here: Financial Literacy for Kids | Learn the basics of Finance and Budgeting