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  • Writer's pictureEvan Werckenthien

Talking Personal Finance with 2 to 5 Year Olds

Updated: Aug 4, 2020

I’ve told Alice, now four months old, many times about her 529 account… and as you would expect, the conversations have not gone particularity well.  Usually they end up in a drooly mess or with her tongue sticking out laughing.  But sooner than you may think, she will be able to learn from our financial conversations.

Although Alice may be too young right now, children as young as two to four may begin to grasp economic ideas and values.  During that time, given a choice, they still may take a dime over a 100-dollar bill based on how shiny it is.  But even with that caveat, their brains are beginning to learn financial fundamentals and values that will stick with them for the rest of their lives.  Studies have shown that children who discuss financial topics with their parents, once or more a week, are almost 50% more likely to say they are smart about money.  Beginning money conversations early will create good financial habits and communication for them.

Some methods or ideas may work for certain kids and not others, and that’s okay. Whether you implement just one or all of the following methods, your child will thank you later… Okay, well maybe not actually thank you, but they should and will be better off for it.  Below are some of my favorite simple concepts to begin sharing with your 2 to 4-year-old child about savings, spending, and college planning.


Keep money in a safe place – Make sure money is kept in a “safe” place and not just laying around the house / in a drawer.  For most children at this age, a savings account may be too complex, so a simple piggy bank may be best.  Next level tip: try a clear piggy bank so your children can see their savings.

Create a three-jar savings system – This is a budgeting system that teaches the principle of spending some, saving some, and giving some to charity.  This can be started with as little as a few dollars every month.  The percent contributed to each jar is not as important as long as some money goes into each jar.  This will begin to teach the lifelong skill of balancing spending now with savings for the future.  This principle does not end when kids become adults but only becomes more important.

  1. Jar 1 – Spend some. This is the impulse buy container or mad money jar.  They should be able to use it any time, within reason.  To set boundaries, make sure to establish beforehand what they cannot spend this money on.

  1. Jar 2 – Save some. This is the least fun jar!  Since children are young and their time frame is much different than adults, the save jar’s time frame should be relatively short.  For older children, if you want to incentivize them to save more and teach them the benefit of saving, offer interest.  Since the going rate of .01% at the bank will do little for their few dollars in this jar, you can offer 25% or even 50% interest on the money they put in.  Again, this money should stay in the jar for a month or two before it can be used.  You could even have them set a goal of what they would like to save up for.

  1. Jar 3 – Give some. Give your child control over what organization should receive the money.  Once it is time to cash out the jar and make the donation, take your child with you.  Let them physically hand the money over to the charity.  Next level tip: establish a charitable matching program and match their contributions dollar for dollar, or quarter for quarter.

Start a family pitch-in savings – A communal family savings jar/box will teach by example and keep the discussion of savings ever-present.  Both children and the parents will save money for a special event into a highly visible jar or box. This special event could be a movie rental, pizza night, donuts, etc. When there is enough money, have your child count it and order the pizza, donuts, or movie him or herself.


Show them that buying things costs money – There can be disconnect and confusion about what money is and how it works.  Sometimes a parent will pay with green paper money, shiny silver coin money, or with a plastic card. These days, you can even pay by swiping your phone! It is important for them to know that all money is coming from the same place and you are using money.  If you are using cash, try to let them count the money before you pay for it.

Teach that you can’t always have what you want – Parents can do harm to their children when they turn into human credit cards for their children.  It is helpful to experience limits of what you can and cannot buy.  This will reinforce some self-control and teach them not to indulge on every whim.  If you are going on an errand, set guidelines before your trip for what you will or will not buy for them.  After all, there is a reason grocery stores keep candy, gum, and magazines loaded at each checkout line. Next level tip: rather than buying them a specific item, give them a specific dollar amount and have them figure out what they can and cannot buy.

Clarify wants versus needs – Begin to teach the basics of needs versus wants.  You can even combine this idea with the charitable money they are saving. Help someone who cannot meet their basic needs to drive home the point.

Don’t trust advertising – It is no secret that advertising works and it makes everyone spend more money.  How can we counteract this?  Try to explain to your kids that an advertisement’s purpose is to make you spend money.  The actors on TV are paid to make the product seem life-changing, awesome, and a must-have.  Have you ever purchased a burger from a fast food restaurant that actually looks like it’s advertised?  What about the color burst water battle balloon set… It looks like everyone is having a blast, but does anyone really want to be hit in the face with a paint filled water balloon?  Most importantly, the company makes money from selling this product and that is their motivation!  Again, this hopefully will create more self-control and awareness.  Since it is 2018 and a lot of people do not watch TV commercials any more, this also applies to any type of advertisement, like billboards, cereal boxes magazines, toy stores, etc.

College Savings

Explain a 529 account – Although a toddler may not know what college is or how expensive it can be, if you have a 529 account, tell them you are saving money for them to go to college.  This simple act is proven to make children more likely to attend college than those who do not have 529 college savings account conversations.

Fighting the money gap

On average, parents talk (probably subconsciously) to their sons more about money than they do with their daughters.  This tends to lead to parents believing their sons have a better understanding and appreciation of money than their daughters.  Money is a topic both boys and girls alike should be confident and knowledgeable in.  Here are some easy ways to make sure we are not passing the money gap issues to our girls at an early age:

Share the talking – This is a great opportunity to show that both mom and dad (men and women) are knowledgeable and make financial decisions.  If your child asks you a financial question, too often the response is “Ask dad / mom, they are the money person.”  This shares with your child that you are not in charge or knowledge about the finance.  If a mother always defers conversations to her spouse, a child could think it is a man’s responsibility to take care of the finances.  If you do not know the answer to the questions, that is okay, simply tell your child you will get back with them soon.

Talk equally to your children – If there is a financial life lesson or lecture about to be taught, make sure both kids are present to absorb the information.  This will help ensure all children are presented with the same information and the important of having financial conversations.  This will go a long way in communicating about finances!

As always feel free to reach out to me with any questions,

Evan Werckenthien, CFP©

Work: 317-587-0858

Cell: 317-627-2529


Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. E.W. Wealth Management and Cambridge are not affiliated. The information in this email is confidential and is intended solely for the addressee. If you are not the intended addressee and have received this email in error, please reply to the sender to inform them of this fact. We cannot accept trade orders through email. Important letters, email, or fax messages should be confirmed by calling 317-587-0858. This email service may not be monitored every day, or after normal business hours. Cambridge does not provide tax advice.

Source: Experian, Federal Reserve

Money confident kids ––kids—money-survey-results.html

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