In today’s fast-paced world, financial literacy has become an essential life skill. Teaching our children about money management from an early age empowers them to make informed decisions, avoid debt traps, and build a strong foundation for a secure financial future.
To help your child develop a solid understanding of finances, we have compiled a list of 20 key financial literacy words and terms that every child should know. You can start teaching kids these terms as early as you see fit.
So let’s get to it!
*The content in this article is based on personal experience and research and is not to be considered professional financial advice.
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A budget is a plan that allocates income towards various expenses and savings goals. Encourage your child to create a budget to ensure they spend within their means.
Compound growth is the exponential increase in the value obtained through consistent saving or investing over time. Teach your child about the benefits of starting early and being patient for their money to grow.
Compound interest is interest earned on both the initial investment and any previously earned interest. Teach your child about the power of compound interest in growing their money over time.
Credit is the ability to borrow money with the promise of repayment in the future. Teach your child about the importance of maintaining a good credit history.
A credit score is a numerical representation of a person’s creditworthiness. Explain to your child that a good credit score opens the door to better financial opportunities.
Debt is money borrowed, usually with added interest, that needs to be repaid. Teach your child about responsible borrowing and the potential consequences of excessive debt.
An entrepreneur is a person who starts and manages a business, taking risks to make a profit. Share inspiring stories of successful entrepreneurs to ignite their entrepreneurial spirit. Encourage kids to start their own businesses to start getting experience with the concept of entrepreneurship.
Expenses are the money spent on goods, services, and bills. Teach your child about distinguishing between needs and wants to help them prioritize their spending and properly allocate their income.
Income refers to the money one earns, such as from a job, investments, or gifts. Teach your child that income is the starting point for managing their finances.
Inflation refers to the general increase in prices of goods and services over time. Explain to your child how inflation affects the purchasing power of money and ways to best navigate it.
Insurance is an agreement in which a person pays for protection against specific risks or losses. Help your child understand the importance of insurance and the different types available.
Interest refers to the additional money paid when borrowing or earned when saving or investing. Help your child understand the concept of interest and how it affects their finances.
Investment involves putting money into assets or ventures with the expectation of future returns. Introduce your child to the concept of long-term investing to help them understand the potential benefits.
Liabilities are debts or financial obligations owed to others. Teach your child about different types of liabilities, such as loans or credit card debt.
Net worth is the difference between a person’s assets and liabilities. Explain to your child how net worth can increase as they grow their assets and decrease with more liabilities.
Philanthropy involves donating time, money, or resources to help others and support charitable causes. Encourage your child to develop a giving mindset and understand the importance of giving back by setting up a separate pot of money to be used specifically for charitable giving.
Risk refers to the potential of losing money or not achieving desired outcomes when investing. Teach your child about assessing and managing risk wisely.
Savings are the money set aside for future needs or emergencies. Teach your child the importance of saving regularly and setting achievable goals.
Taxes are compulsory payments made to the government for public services and infrastructure. Teach your child about the basics of taxes and how they contribute to society.
Teaching kids key financial terms at an age-appropriate level sets the foundation for a lifetime of smart money management.
So let’s discuss some effective strategies to introduce and explain financial concepts to children in a way that is engaging, relatable, and easy to understand.
- Start with simple concepts like identifying coins and their values.
- Introduce basic financial literacy words and terms and money management skills through pretend play, such as a toy store or a lemonade stand.
- Teach them the concept of saving money in a piggy bank and setting goals for small purchases. Make sure you use the appropriate terms to describe the process.
- Introduce the idea of earning money through chores and allowances.
- Use basic financial terms like budget, income, expenses, and savings.
- Play interactive games or use educational apps that help reinforce financial concepts.
- Explain more complex financial terms like inflation, interest, and debt.
- Allow children to have their own debit cards so they can start getting experience with using their own cards.
- Discuss the importance of setting financial goals and making informed spending choices.
- Expand on financial terms like credit, assets, liabilities, and insurance.
- Teach them how to create a budget and manage their spending.
- Discuss the value of long-term financial planning and preparing for college or future career expenses.
- Utilize age-appropriate books and online resources that explain financial words and terms in a relatable manner.
- Seek out local community events or workshops that offer financial literacy programs for kids.
- Incorporate financial literacy into academic subjects like math and social studies.
- Check out the vast amount of financial literacy content we share right here on Major League Mommy!
By equipping children with financial literacy terminology and knowledge, we empower them to better understand how finances and the economy work.
Introduce these 20 essential financial literacy words and terms at an age-appropriate level, elaborating as they grow older, and make financial discussions a regular part of family conversations.
With a strong financial foundation, our children can confidently navigate the complexities of the modern financial world and build a secure future.