Money can be complicated and overwhelming, so it’s not surprising parents often wonder when and how to start teaching their children the basics. Children develop at different rates, which means not every child is ready to learn about money at the same age. You’ll know you can start teaching about money when you notice your child asking or showing interest in buying things or in money itself.

The next step is to decide what concepts to teach. Janet Bodnar of Kiplinger’s Personal Finance has popularized her list of the five basic things your children should know about money at the age of five. Here is our take on the list:

1. A dime is worth more than a nickel even though it is smaller.

While you would be hard pressed to find more than \$40 in my wallet these days as technology continues to change the way we shop and manage money, children have a much easier time understanding something they can touch, see and watch grow. The classic piggy bank is a great way to help them distinguish between different coins and start the saving process.

It’s okay if your five-year-old doesn’t immediately grasp that dimes are worth more than nickels. Understanding that there isn’t always a relationship between size and value is a pretty abstract concept for a preschooler or kindergartener to wrap their heads around. Now, if your teenager has trouble with that concept, that’s another matter entirely…

2. Coins can be exchanged for other good stuff.

Next snack time, place 5 pennies and a nickel on the table and explain that 5 pennies equals the same as 1 nickel. Then grab a box of animal crackers and juice and tell them each animal cracker can be bought for one cent and a glass of juice is five cents. Allow them to then determine how they will purchase their snack items.

3. The toys they see on TV won’t look as flashy or work as well, at home.

Have you ever been watching television when a McDonalds commercial comes on flashing pictures of the most mouth-watering burgers and crisp, golden brown fries? You succumb to this hankering and hit the drive-thru only to find that your burger looks like someone sat on it and your fries are soggy and limp. Teach your children that advertising uses tricks to get you to buy the product, not necessarily to represent the real world. Have them compare the actual product to the commercial.

There are a couple of excellent websites teaching children media and advertising literacy so that they are less easily fooled by commercials. The FTC’s website has useful information on this particular topic. You can also watch an interesting video with your children in which a food stylist (like a makeup artist for food) reveals the tricks of the trade to make that hamburger look so mouth-watering onscreen. This video is part of a larger media literacy curriculum developed by media educator Frank Baker.

4. Saving money can be fun when they can use it to buy something later.

Don’t be discouraged if your children want to spend money as soon as they get it at this age. You are off to a good start if they understand that money can be exchanged for stuff. But as I’ve mentioned before, delayed gratification is one of the most important smart money lessons for kids to grasp. Teaching them they can buy a small toy now or save for a much bigger and better toy later, helps them understand the power of saving. My nephew loves Matchbox cars but he likes the big Tonka trucks better. By teaching him how many Matchbox cars it takes to get a Tonka truck, he is not as likely to beg for a car every time he goes to the store.

5. They will not get everything they ask for.

Saying no is a part of being a parent but be careful not to discourage your children from asking. I often notice that successful people are far more likely to ask for help when they want something or need to solve a problem. Changing the “Can I have?” to “How do I get?” can pay great dividends in your child’s future. Assuming you are not opposed to the purchase, help them put together a plan to get what they want.

Want more thoughts and ideas on being a smart money parent? Visit smartmoneyparents.com to view the article archive and follow me on Twitter @ScottSerfass.

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