Summer arrives – bees, picnics, nostalgia and the chaotic sound of kids everywhere. It’s enough to bring back memories of sweating behind a lawnmower or scrubbing grandpa’s car to get a few precious dollars to spend at the mall or the movies.

Now as the adult, you can see things from the other side of the table. Now you’re the one handing out those coveted dollars, and it’s hard not to wonder how you can teach the little ones in your life to be wise with their cash.

When the classroom door closes for summer break, how can you impart a few practical lessons about finance? How do you help them start out that long journey of understanding money on sure footing? Let’s look at a few ideas today on teaching kids about money.

The Two Stages of Child Psychology

Kids’ brains work differently than ours. Concepts and structures that may seem obvious to us will seem like an alien language to them. Most kids who are old enough to have a piggy bank or a sock full of quarters are in two main stages of development:

1. Concrete Operational Thinking – Age 7-11

Jean Piaget, the famous French pediatric psychologist, divided cognition in children into a few stages. The concrete operational stage, which covers most of elementary school, is characterized by solid, non-abstract thinking. Kids at this stage might see that A=B and B=C, but they’ll struggle to see that A=C because the connection is too abstract. Concrete operational thinkers work mostly in what’s in front of them – if they can’t see or touch the solution, it doesn’t exist.

2. Formal Operational Thinking – Age 12 into Adulthood

In the formal operational stage, kids start thinking on an abstract level. Instead of the trial-and-error that characterizes problem-solving in earlier stages, now kids can think through a hypothesis and possible outcomes before they begin. They develop the ability to “think about thinking,” and discern whether an idea is good or bad before seeing it play out completely.

Knowing which stage a child is in can help you know which money lessons to apply. Loans and interest probably won’t make sense to a second grader, and counting plastic coins won’t be very interesting to a junior higher. As you teach kids about money, the lessons can build on each other year over year.

But what about kids under the age of 7, you ask? The preoperational stage – ages 2 to 7 – is marked by language development and role-playing, as well as increasingly complex pretend games. Kids toward the end of this stage may start to show a passing interest in money and could benefit from hands-on money lessons, although they may struggle to understand concepts like savings and piggy banks.

The Touch of Money

In a high-tech world, kids can develop the unfortunate idea that money comes out of the “magic” ATM. Or they might never see cash at all if their parents are always using plastic. It’s hard enough to think of money as real when we as adults don’t handle it directly, but can you imagine that for a child?

A concrete operational thinker won’t even understand that money is being exchanged, let alone that the money you have will eventually deplete. The actual tactile experience of bills and coins can be so important at this stage.

“My daughter is five,” said Erin Wood, Vice President of Financial Planning at Carson Wealth. “We make sure to give her the dollar she’s earned when we’re actually in the ice cream shop so she can walk to the counter herself and buy a cone.”

Seeing and feeling money exchanged for goods helps a child make the connection between cash and value. They have money, then they get a toy or a go to a movie, and the money’s gone. As one financial writer said recently, “Why do we expect kids to know how to handle money when we don’t put it in their hands to let them practice?”

For kids closer to the end of this phase, you can open a bank account that will help them understand savings on a more sophisticated level. If they have to wait in line with their birthday/Christmas/Hanukkah money in hand and then deposit it, they’ll have some concrete understanding of the financial journey.

Money in the Abstract

At the formal operational Stage, abstract thought starts to appear in a child’s mind. They might’ve made the connection now between green paper and semi-precious metals and finance, but at this point, they will want to discuss the next level.

This stage is an optimal time to talk about budgeting. Young minds can now look at a hypothesis and weigh a few options and outcomes, rather than raw trial-and-error. A consistent, simple budget can help them see the differences between funds at work. For example:

Budgeting Ideas for Young Minds

Here are three ways you can help your children budget from an early age.

The obvious lessons of math, patience, thinking ahead and planning are too many to count. Giving them the practice of thinking about money rather than simply spending it is an invaluable life lesson.

Talking to your older kids about grown-up finance will also help them get a foothold for later in life. You might take the conversation beyond personal budgeting to the more complex concepts of loans and interest, investing and the stock market. The SIFMA foundation even has a stock-market simulation game for 4th to 12th-grade classrooms as a way to start the high-level financial conversation.

The Values of a Dollar – Teaching Character

Renowned psychologist B.F. Skinner said, “Education is what survives when what was learned has been forgotten.” Long after kids have forgotten which toy they bought or which movie they saw, they’ll have developed an awareness of spending and saving, and that awareness is priceless.

Teaching kids about money is really teaching them about values. A child who has to wait as their money accumulates before making a big purchase learns about investing, patience and value. A child who sees their account statement every month and watches the interest grow learns about savings, responsibility and planning for the future. A child who donates a percentage to charity or the church will learn about generosity and being part of something greater than themselves.

Involved parents can even match dollar-for-dollar to teach kids the value of budgeting. Matching contributions to a savings account or charitable cause reinforces the undeniable connection between stewardship of money and who you are.

Finance is a complex, emotional landscape that’s difficult to navigate without a guide. Whether it’s handling your own portfolio, teaching your family about finance or making sure your legacy is prepared for them, your advisor can help you on the journey. As we’ve discussed here, finance and values are closely intertwined. Let’s talk and make sure your portfolio expresses your dreams and goals for the future.