It's hard to explain money to a three-year-old. In a preschooler's mind, there is a limitless supply of money in the world. Anyone can get it simply by pressing the right buttons on an ATM machine. If your preschooler has been pestering you for a new toy, book, game or trip, it's important that you explain the basics of home finance management and frugality. If your child has no understanding of financially prioritizing, she will expect to receive every object she requests-- with no understanding of why you sometimes say "no."
Here are a few simple tips for your preschool-age child about money.
1. Don't say you can't afford something. Preschoolers think in very concrete terms. If you say "We can't afford that," when she asks for a $20 toy, she'll wonder how it is that you came up with a $150 for groceries later in the day. Instead of using the old "we can't afford it" mantra, explain the reality: "There are things that we need and things that we don't need. Although we have enough money to buy that toy, we need to use that money to pay our bills so we have electricity and water in our house." If you want, you can reiterate this point by asking your preschooler, "Would you prefer that pair of Spongebob socks, or would you prefer to have a house to live in?" Your child needs to know the difference between a financially want and a financial need.
2. Let your child see you working. I work from home, so my three-year-old understands that I have a job and that it requires me to spend time doing something besides parenting. Before writing this very article, I explained to my daughter that we would only have money to buy a new book if I had time to write an article. Understanding the cause and effect, she will patiently sit while I work so that we have money to buy things we both need. This can be a bit more difficult for parents who work outside the home, but you can always preface each work-day by saying, "Okay, I have to go to work-- so that we have money for the things we need and want." An understanding of why you work will help your child appreciate the time invested in affording new things.
3. Give an allowance. Your preschooler probably isn't nearly mature enough for her own self-managed allowance, but that's no reason to prevent her from having any of her own money. I let my daughter have a quarter as an "allowance" every few days. Sometimes she wants to throw it into a fountain to make a wish, or donate it to the Humane Society or another charity-box. I don't discourage this at all--especially not her desire to help others-- but I don't give her another quarter if she asks to buy a lollipop or a handful of M & Ms. By giving your preschooler her own allowance, no matter how small, you encourage an understanding of money.
4. Make a game of it. Teach your child to manage money by playing simple games like "grocery store" or "pet store." Collect several toys and other objects and give your child a few coins. Explain the (pretend) price of each item and encourage your child to select the one that is least expensive or that she would prefer to buy. It's best to play this game with only pennies to keep it simple and easy to understand. You can add other coins to the mix as your preschooler develops an understanding of currency equivalents.
5. Discuss credit and debit cards. This can be difficult for a child to understand, but it's important to address. A preschooler is likely to have a misconception that debit cards provide an unlimited amount of cash. Explain (even if you have a credit card, not a debit card) that the card only tells cashiers how to get money from your bank account. Explain that using a card is just like any other kind of money, but that it makes it so that you don't have to carry as much cash on hand. With this in mind, your preschooler is likely to be more understanding of your financial limitations.
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