19th December 2022

The importance of talking money to our kids

We all need a financial literacy. Teaching children the basics about how money works, its value and why to save it can spare them so much hassle as adults.

This article won't answer specific questions about finance, but it will give you some ideas for teaching your children the value of money and savings.

What is financial literacy and why is it so important?

Financial literacy is the "process by which financial consumers/investors

  • improve their understanding of financial products, concepts and risks and,
  • through information, instruction or objective advice, develop the skills and confidence
    • to become more aware of financial risks and opportunities,
    • to make informed decisions,
    • to know where to go for help and
    • to take other effective actions to improve their financial well-being." (Source: OECD Council, June 2005)

Who is financial literacy meant for?

Even though the definition above was only for consumers/investors, financial literacy is for everyone.

When it comes to money, here's an idea of what to teach your kids and when:

  • small children: what money is and what it's worth;
  • pre-teens (ages 7-12): how to manage their allowance and save for a specific goal (e.g. a bicycle);
  • teens (ages 13-18): how to make their first financial decisions (e.g. buying a mobile phone), and about budgets, income, expenses and savings;
  • young adults (ages 19 and up): how to finance their education, pay rent on their first place, pay bills and "household" expenses, etc.

Talking about money to our kids?

We don't talk about money!

Money is a taboo subject in conversation, and talking about money or your personal finances is often frowned upon.

But it's an important topic, and we need to talk about money, especially with our families.

Households have fixed monthly income and expenses, and knowing how much we have available is critical.

Explaining to your children that certain expenses are simply impossible will teach them financial skills they will use over the course of their lives.

How to talk money to your kids?

How you approach the subject depends first of all on the age of your child.

Most likely, the youngest children can already understand the following concepts.

1. Why do we need money?

Everything costs money, whether it’s living in an apartment/house; buying/using some form of transportation (bicycle, scooter, car); buying food, clothes or games; playing sports; going to the cinema; going on holiday, etc.

Some dreams can only come true if there’s enough money to pay for them.

Parents each work for a monthly salary, and together these salaries have to be able to cover the whole family’s expenses.

2. Explain what a bank is by using a piggy bank.

"When you get money, you put it in your piggy bank. If you want to buy a toy, you have to see how much you have in your piggy bank. If you have enough money to pay for it, you can buy it. If you don't, you have to save up for it." 

A current account is a lot like that piggy bank – it's a place parents can keep their money. Their salaries go into their current account, and they pay for what they need from this account. Parents have a bank card they can use to take out or spend the money in their account.

3. What does a bank do?

"A bank uses money to earn money. It holds money for some people, and gives money to others (in the form of a loan), who pay interest (for repayment) and fees (for the bank's service)." 

It may be a bit too complicated to explain to your children how loans, interest and similar financial tools work! Nevertheless, there are wonderful books for every age which can easily explain money and finance.

4. What is saving?

In Luxembourg, it’s customary to open a savings account when a child is born. As soon as the child is able to understand, you can explain to him how saving works. To illustrate building up reserves for the future, you can use examples like how squirrels build up reserves for the winter.

When a child receives money from grandparents, for example, explain the concept to him and help him decide between spending it on a purchase or depositing some or all of the money in a savings account.

Allow time to teach your children these skills.

How to teach your children to use money?

1. Let them manage their pocket money as they like

The amount of pocket money you give to your child obviously depends on its age and your personal circumstances.

Pocket money is an excellent tool for teaching them how to manage their expenses. Let’s say child daughter gets EUR X of pocket money per week, depending on its age. If she has to use that money to pay for her favourite magazine, trips to the cinema, gifts for her friends, etc.,

She’ll learn to manage a given amount of money by herself.


Give your child a notebook where she/he can write down the pocket money entries and  expenses.

For older kids, try a chart on their computer or an app on their smartphone.

Having visibility on their expenses helps them make the right choices.

2. Let them make mistakes.

In Greg McKeown's book, Effortless, he explains how he and his wife gave their children the chance to waste some of their money. It’s important to learn this when you're young and the stakes are still low.

The kids got three jars each – one for charity, one for savings and one for expenses. When they got their allowance, they were free to divide the money between the three jars. Their parents stayed neutral and didn't give them any advice.

The kids were free to make their own “financial” decisions – for better or for worse.

Their eight-year-old son spent EUR 40 on an electric car, but was disappointed in his purchase and regretted it immediately. He should have saved it for his real dream, which was bigger and more expensive – a new bicycle.

Later on, as a teenager, he had already learned how to save a large sum of money for a specific goal, a trip worth several thousand euros.


Learning from your mistakes when the stakes are still low can help you achieve specific goals in the future.

3. Teach them to save with a challenge.

How can a pre-teen, teen or young adult save EUR 1.378 in a year?

Check out the 52-week savings challenge and make it an epic goal for the new year!

Get a nice piggy bank and save every week.

For week one, put in EUR 1. For week two, put in EUR 2, and keep going until week 52, when you’ll put in EUR 52.

EUR 1 + 2 + 3 + … + 51 + 52 equals EUR 1.378, a healthy sum for a young person to either put in a savings account, or to spend all or some of to make a dream come true.


No matter what challenge to choose for your children or yourselves, make a savings chart to track your progress!

Are you ready for your own challenge?

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