An exercise on financial literacy for kids

Written and accurate as at: 4 December 2018

In our article, ‘The 2018 HILDA Survey: Financial literacy quiz’, we discuss the fact that financial literacy is an important life skill. For example, it can aid an individual in making sound financial decisions (i.e. via healthy financial attitudes and behaviours) and achieving financial wellbeing (i.e. via positive economic outcomes).

We also noted the marked differences in the financial literacy scores of the examined age groups. In particular, those aged 15-24 recorded the lowest financial literacy score across the board, and in all assessed areas (i.e. numeracy, inflation, diversification, and risk vs return) bar one (i.e. money illusion).


Importantly, if not appropriately addressed, this can have ramifications for an individual now and into the future – in terms of how they decide to approach earning, spending, saving, investing and giving away money.


An exercise on financial literacy for kids

Admittedly, financial literacy, like any life skill, takes time and effort to master. However, a strong foundation from which to build upon, a willingness to learn and a supportive environment can help.

Financial literacy needs to be nurtured from a young age through the teaching of personal finance concepts and the instilling of healthy financial attitudes and behaviours.

Below we have provided you with a simple exercise (broken down into nine steps) that you may find helpful to get the ball rolling with your children. Importantly, you may need to tailor this to suit your own personal circumstances.


  1. Explain the concept of money (showing them cash notes, coins and debit/credit cards in the process). This will teach your children that money provides a common base to value and exchange goods and services and it can also be used as a store of value (to save and use for later).


  1. Establish a daily/weekly age-appropriate chore routine that is linked to pocket money (a mixture of low-value cash notes and coins). This will teach your children about the source and destination of cashflow (the way money moves), with emphasis on the fact that ‘money doesn’t grow on trees’; rather it needs to be earnt.


  1. Explain the difference between needs and wants, and ask them to write a list of things they need and want. This will teach your children that there is a difference between needs/necessities and wants/luxuries, whilst also helping them to identify their own (and subsequently better inform their upcoming purchasing decisions).


  1. Take them shopping and ask them to write down the cost of the things they need and want (preferably from at least two different retailers). This will teach your children several things:

    1. Reinforce that money provides a common base to value and exchange goods and services.
    2. The importance of comparing the price of things between different retailers.


  1. After their first pocket money is received, provide them with three piggy banks/jars, labelled ‘Needs’, ‘Wants’, and ‘Savings’, and ask them to deposit the following percentage amounts into each, 50%, 30%, and 20% respectively. This will teach your children the importance of budgeting and managing their money in a responsible and disciplined way.


  1. Ask them to decide the needs and wants from their list that they would like, and can afford, to purchase now. Importantly, don’t allow them to bolster their purchasing power with the ‘Savings’ piggy bank/jar just yet. This will teach your children about money limits and prioritising their purchases – namely, they can’t have everything now, a certain level of compromise has to occur.


  1. Take them shopping and assist them with purchasing the above things that they have decided upon with their pocket money. This will teach your children about being aware of money leaving their possession. A cash-based payment is tangible – the cash notes and coins that they hold in their hand has value attached to it. This awareness is often lost when using ‘tap and pay’.


  1. Ask them to donate a small portion from their ‘Wants’ piggy bank/jar to a charity of their choosing. This will teach your children about taking the time to reflect on not only their life, but also the lives of those less fortunate. In a nutshell, being thankful for what they have and helping those in need where they can – even a small gesture can make a big difference in someone’s life.


  1. Ask them to review their list of remaining needs and wants, and help them to work out how long it will take them to save for these things given their incoming cashflow and 50/30/20 budgeting split. Importantly, you can now take into account the ‘Savings’ piggy bank/jar, but a portion should remain at all times. This will teach your children about the benefits of goal setting (and savings plans) and delayed gratification, as well as keeping an emergency buffer at hand.


Please note: Depending on the age of your children, you may also want to introduce them to other concepts, such as the following:

  • The impact of inflation and wage growth on purchasing power over time.
  • Online and digital purchases and the fact that these still involve the use of real money.
  • Savings and everyday accounts, as well as debit and credit cards (or borrowing from you).


Moving forward

In our animation, ‘Beliefs on Money’, we discuss that your beliefs on money, which can influence your financial attitudes and behaviours, are often shaped by your experiences, education and relationships (and your interpretation of these things). Importantly, the same also applies to your children.

With this in mind, whilst we have provided you with an exercise to get the ball rolling with your children in terms of their financial literacy, it’s important to be mindful of something. Children also learn a lot by watching how you approach your own earning, spending, saving, investing and giving away of money. As such, there needs to be consistency with regards to the messages that your children are receiving.

If you have any queries about this article, then please contact us.