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5 Essential Principles of Financial Literacy for Kids on the Homestead

Financial literacy is the ability to understand good money habits and make sound financial decisions. It’s never too early to start teaching financial literacy for kids, and with the right tools, it can be a fun and engaging experience for both parents and children.

Parents should teach their kids about financial literacy because it is an important aspect of living a self-sufficient life. Financial literacy teaches kids about saving money, budgeting, and making wise investments. This information will help them when they are adults and have to make important decisions about their finances.

When my son Henry became interested in owning and breeding axolotls, I knew that I needed to teach him about financial literacy. So, we set out on a journey to learn everything he needed to know about money.

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We opened a savings account and started depositing money into it each week. We also started learning about ways to earn money. He did odd jobs for our neighbors, and I paid him for extra jobs he did here around the farm.

Melanoid axolotl my son purchased after doing odd jobs and saving his money

After several months of hard work, Henry had saved up enough money to purchase his very own axolotl! He was so excited!

He purchased an aquarium, food, and all the other supplies he would need to care for his axolotl. He was so proud of himself, and I was so proud of him!

This experience was a great way to teach Henry about financial literacy. He learned how to save money, how to budget, and how to make wise investments. These are lessons that will serve him well throughout his life.

There are several advantages to teaching kids about financial literacy at a young age.

  1. It will help them make wise financial decisions when they are adults.
  2. It will help them develop good spending and savings habits.
  3. It will teach them how to be responsible with money.
  4. It will help them understand the importance of financial planning.

It’s never too early to start learning about money management, and with the appropriate tools, it can be a fun and educational experience for both parents and children.

So how do parents help their kids learn the basics of being financially literate?

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5 steps to financial literacy for kids on the homestead

The importance of financial literacy for children

It is never too early to start teaching kids about money management, and with the right tools, it can be a fun and engaging experience for both parents and children.

Children are our hope for the future and teaching them about financial risks at a young age is one way to ensure they have a bright future.

By explaining the concept of debt and how it can impact their lives, children will be less likely to make the same mistakes we have.

My husband and I filed bankruptcy when our oldest child was a year old. We’ve lived the consequences of accruing too much credit card and student loan debt. So we’ve made the conscious decision to raise our kids to be financially literate.

We want our kids to know how to manage money so they can avoid the mistakes we made. We want them to be able to make sound financial decisions that will benefit them in the long run.

Kid putting coins in a piggy bank - financial literacy for kids

Benefits of Financial Literacy for Kids

Kids who are financially literate see financial literacy as a lifelong pursuit. This pursuit can HELP them in many different ways.

For example, kids who are financially literate are more likely to make sound investment choices later in life. Financial literacy can also help them manage their own personal finances wisely, and even prepare for unforeseen financial emergencies.

So why not help your child get a head start on financial literacy today?

Personal Finance Basics

Teaching kids about finances starts with giving them the tools they need to be successful.

Money management is a valuable skill that kids can use for the rest of their lives. Help them get started on the right track by teaching them the basics early on.

The Financial Literacy and Education Commission identifies 5 principles of financial literacy. They are:

  1. Earn
  2. Save & Invest
  3. Protect
  4. Spend
  5. Borrow

Let’s break those down into how we can apply them to kids.

Understanding Pay and Benefits

At some point, your child will start receiving an allowance or working a part-time job. This is the perfect opportunity to start teaching them about earning money.

We have actually set up a system for our kids to pay them for bigger chores. They also receive a base allowance, but this gives them the opportunity to earn extra money for doing chores that wouldn’t normally be their responsibility or maybe for doing chores that others don’t want to do.

They are also responsible for their own discretionary spending, so if there is fun stuff they want to buy or do, they have to use their own money. If they don’t have the money, they don’t get to do it.

parents teaching son about saving and investing

Teaching Kids about Savings and Investing

The second principle of financial literacy is saving and investing. When your kids start receiving money, whether it’s from an allowance or a part-time job, encourage them to put some of that money into savings.

You can help them open a savings account at your local bank or credit union. Once they have a savings goal in mind, they can start working towards it.

You can also teach them about investing. This can be a complex topic, but there are some basic concepts that kids can understand.

Begin by teaching them the basics of risk and reward when investing in stocks and bonds. You can show them your stock portfolio and explain why you invested in those firms. Keep an eye on the stock price and company news with your child.

Some investment firms like Charles Schwab offer custodial brokerage accounts for kids so they can start investing.

Identity Theft and Protecting Your Kids

Identity theft is a big problem these days. You can help protect your kids by teaching them how to safeguard their personal information.

Explain to them why they shouldn’t give out their Social Security number or other personal information to people they don’t know.

You should also monitor their credit report for any suspicious activity.

Kids under the age of 18 do not usually have credit reports. If your kid has a credit report, it may be an indication that their personal information has been misused for fraud or identity theft.

Once a child turns 16, you should start checking their credit score every year. This will help you to find any potential problems before the child becomes an adult and needs to rely on their credit rating for things like loans or renting an apartment.

two girls shopping - making smart spending decisions

Making Smart Spending Decisions

The fourth principle of financial literacy is spending. Just like adults, kids need to be mindful of their spending habits.

One way to teach kids about spending is to give them an allowance and have them track their expenses. This will help them understand where their money is going and whether they are spending too much or too little in certain areas.

You can also help them set spending goals. For example, if they want to buy a new toy (or an axolotl), they need to save up for it instead of spending all their money on smaller items.

Finally, teach them about impulse buying and why it’s often not a good idea. This is a hard concept for kids (and adults!) to understand, but it’s important.

Explain to them that they need to prioritize the thing that they’re saving for. By spending their money on smaller items, they are taking money away from their big savings goal and essentially prioritizing it above their big savings goal.

We use the app GoHenry for our kids’ debit card accounts.

The kids can set savings goals based upon the things that they are saving up to purchase. They can also set the amount of money that they want deducted from their allowance each week to go towards the savings goals.

I can also set daily, weekly, and per transaction spending limits on their cards. Only the amount of their limit will show to them as available to spend.

I also set a base savings goal for them that is locked so a portion of their allowance has to go to an emergency fund. They don’t have the ability to stop the savings goal or withdrawal money from it from their accounts.

This helps them to learn that even when they don’t feel like it, they have to save some of their money. It’s also helped my kids to be more mindful about their purchases because they have less available to spend on their debit cards since their savings goals are not available for spending.

I also like that GoHenry includes financial lessons to help kids learn the basics of personal finance and how to develop good habits with their money management.

credit cards with billing statement - financial literacy for kids

Borrowing Money and Credit Card Debt

The fifth and final principle of financial literacy is borrowing. This is a complex topic, but there are some basics that kids should understand.

It is helpful for kids to understand that debt is normal. However, teaching them about the negative impacts of debt can help them realize how harmful it can be to their finances and their future.

When it comes to financial literacy for kids, compound interest is usually talked about in regards to long-term saving and investing as a way to build wealth. But equally as important is the negative power of compound interest in regards to debt.

Start by explaining how compound interest can work in your favor. This is when you earn money on the money that you have saved. Then, explain how debt can work against you by using compounding to make it harder for you to pay off what you owe.

Lenders make money by charging you interest rates on the money you borrow from them. This interest can add up over time, just like if you were to invest that money.

Unfortunately, a lot of types of debt do not just compound once a year. They compound every month or even every day. This means that the balance you owe keeps getting bigger and you have to pay more interest over the life of the debt.

For example, if you have a credit card account that charges 18% interest and you have $10,000 in debt on the card, it would take 28.5 to pay off the debt by making only the minimum payments each month.

At the end of 28.5 years, you’d have paid $14,423 in interest. That’s more than the original balance on the card.

As you can see, compounding is a powerful tool. It can be used to help you build wealth or it can be used to trap you in a cycle of debt.

Teach your kids about the importance of making smart borrowing decisions. They should only take out loans if they are confident that they will be able to make the payments.

Introduction to Budgeting

Budgeting is an important skill for people of all ages, but it’s especially important for kids to understand because financial literacy is about learning to live on less money than they make.

Help your child get started on their budget by brainstorming what kinds of expenses they have. Once they’ve got a handle on that, have them start tracking their spending for a couple of weeks.

After that, sit down with them and help them create a plan for how much they want to save each month.

If your child is having trouble sticking to their budget, help them troubleshoot. Maybe they need to set smaller goals or find different ways for saving money.

Most importantly, stress that sticking to a budget takes practice. But it’s a skill that will serve them well throughout their lives.

Checking and Savings Accounts

One of the best ways to teach kids about money is to help them open up checking and savings accounts.

You can find banks that offer special accounts for kids or you can open a joint account with your child.

This will give them a chance to see how a bank works and how their money can grow over time by keeping it in a savings account.

We have savings accounts set up for our kids in addition to their GoHenry accounts so that they can have an account where the money is less accessible and can earn interest.

Choosing a Bank or Credit Union

There are a lot of different banks and credit unions out there. It’s important to choose one that is right for you and your family.

You should look for an institution that offers the services that you need and that does not charge fees. You should also consider whether you want a brick-and-mortar bank or an online bank.

Online banks are more likely to have no fee checking and savings accounts, but you may not be able to deposit cash into them.

You can also check with the bank where you have your primary checking and savings accounts. They are likely to have accounts available for your children since you already hold accounts with them.

entrepreneurship for kids - two kids selling stuff and collecting money

Entrepreneurship for Kids

One of the best ways to teach financial literacy to kids is by teaching and encouraging them to start their own businesses.

This can be a great way for them to learn about money management, budgeting, and savings.

It’s also a great way for them to learn about marketing, customer service, and other important business skills.

Being an entrepreneur means working hard, communicating effectively, and bouncing back after disappointment. These skills can be practiced in a supportive environment and will serve kids well in their careers and personal lives.

There are a lot of different businesses that kids can start.

One option is to start a cottage food business. This can be a great way for kids to learn about setting prices, controlling costs, and sales.

Another option is to start a lawncare business. This can teach kids responsibility, time management, and hard work.

There are endless possibilities when it comes to starting a business. The important thing is to choose something that your child is passionate about.


Teaching kids about money is important, and there are a variety of ways to do it. You can start by teaching them the basics of financial literacy-how to save money, how to budget, and how to make wise investments. Once they have a strong foundation in financial literacy, they will be able to tackle money management confidently and with ease.