Financial Glossary for Kids Broken Down by Age

Financial Glossary for Kids Broken Down by Age

Teaching your kids how to manage their money is a life skill they’ll always use. Raising your children with the knowledge of how they can earn, save, and budget money will give them a head start to be prepared for the real world. It all starts with helping them understand some of these financial terms.

Age 4-8

• Allowance: Money that is given to kids by parents regularly, usually for doing chores.

Example: "I get an allowance of $5 every week for cleaning my room."

• Piggy Bank: A container for saving coins and money at home.

Example: "I put my spare change in my piggy bank."

• Credit Union / Bank: A place where people can save money, borrow money, and do other financial activities.

Example: "I went to the Credit Union with my parents to open a savings account."

• Saving / Savings Account: Money set aside over time for future spending. A savings account is a place to keep that money that you’ve saved over time.

Example: "I opened a savings account to save for a new video game."

• Savings Goal: A specific amount of money you aim to save for a particular purpose.

Example: "I have a savings goal of $100 for a new video game."

• Balance: The amount of money you have in your piggy bank or savings account.

Example: "I checked my account balance online."

Introducing the concept of saving at a young age can have a huge impact on your child’s life, especially for those who can embrace it early. The best way to illustrate saving money is to give them an active role in the practice.

Here’s an idea: start with candy! Ask them to hold onto candy until the weekend. Start small and work up to more and more to see how much they can save all week. Then, at the end, show them money works the same way. If you put some aside, you can watch it add up. Or, if you use it right away it has less of an impact. From there you can grow their active participation by setting savings goals with them and helping them reach a goal that is attainable for their age.

Age 8-10

• Budget: A plan for how to spend and save money.

Example: "I made a budget to save up for a new bike."

• Deposit: Money put into a bank account.

Example: "I deposited my birthday money into my savings account."

• Withdrawal: Taking money out of a bank account.

Example: "I made a withdrawal to buy a gift for my friend."

• Checking Account: A bank account used for daily spending and paying bills.

Example: "My mom uses her checking account to pay for groceries."

• Debit Card: A card typically linked to your checking account that can be used to make purchases or withdraw money. When you use your debit card to buy something or withdraw money, money is deducted from your checking account which holds money you’ve saved over time.

Example: "I used my debit card to pay for groceries today."

• ATM: A machine that lets you take money out of your bank account using a debit card.

Example: "We used the ATM to get cash for the weekend."

Age 8-10 can be a fun time to start ‘budgeting’ with your kiddos. One interactive way that a lot of parents teach kids how to budget is with the ‘jar method’. You have three jars, each labeled with "give, save, or spend”.  

Whenever your child earns money, they divide it between the jars. The “save” jar is money that's intended for a longer-term goal. Money in the “spend” jar can be used any time for smaller purchases. The “give” jar is money that will go to a charity of their choosing. The give jar, in particular, is great to get them to think about helping others while allowing them the freedom to choose where to donate their money.

Another interactive approach can be as simple as getting your kids involved with your family budget. Start small with your grocery shopping list. Set a budget, make a list, and let them help you along the way to see if they’re able to stay within budget, if not help them see what other choices they could’ve made.

Age 10-12

• Debt: Money that is owed to another person or financial institution.

Example: "My parents say it’s important to pay off debt quickly."

• Loan: Money that is borrowed and needs to be paid back.

Example:"The credit union gave my parents a loan to buy our house."

• Credit / Credit Card: The use of someone else’s money (or a financial institution’s) typically with a fee. A credit card is a card that allows you to borrow money to buy things and pay it back later.

Example: "My dad used his credit card to buy my birthday gift."

Be sure to explain the difference between a debit and a credit card to your child. One (debit) is money that you already have which is pulled from the account when you pay. The other (credit) is money you borrow and pay back later. (Be sure to educate your child on credit cards and how they can inherently get you into trouble if not managed properly).

Immerse your child in the world of credit by explaining to them some of the things people might take out a loan for. While you’re at it, demonstrate the process of lending them an item and how you expect to get it back.

Age 12-14

• Interest: Money earned from saving money in a bank, or the cost of borrowing money.

Example: "I earned interest on the money I saved in my account."

• Annual percentage rate (APR) VS. Annual percentage yield (APY):

Annual Percentage Rate (APR) is the yearly cost of borrowing money, including interest and fees. It's a measurement of the cost of an amount of money you borrow from a financial institution. APR’s can apply to loans, mortgages, and credit cards.

Annual Percentage Yield (APY) is the annual rate of return that you can earn on a savings deposit or investment. APY takes compounding interest into effect when it’s calculated, and that’s why the account balance and the interest paid on the balance can grow every period.

APR Example: "You’ll see that your credit card APR is 12%.  This is the interest rate at which you'll be charged if you don't pay off your borrowed balance each month."

APY Example: "You can see our account APY rates on the website. That might help you choose which account you’d like, based on how much interest you'll earn on your money over a year”.

You can teach your child an interactive lesson on credit and how interest works the next time you’re shopping. When at the store, the next time your kiddo wants that special toy, let them borrow the money…say $10. But explain how they must pay you back right away when you get home. If they don't, start adding on interest and continue to until they've paid you back.

Age 15+

• Credit Score: A credit score is a number that shows how reliable a person is at paying back borrowed money. It's like a grade for your financial behavior. Paying money back on time can help you get a good score, whereas making late or no payments means your score goes down.

Example: "My parents have an A+ credit score”.

• Investment: Using money to buy something that can eventually earn more money or be worth more money.

Example: "My parents invested money in the stock market."

• Mortgage: A special long-term loan used to buy a house.

Example: "My parents pay a mortgage every month for our home."

• Retirement: Retirement refers to the time of life when one chooses to permanently or partly leave the workforce behind.

Example: "My grandma is enjoying retirement."

• Tax: Money paid to the government to help pay for things like schools and roads.

Example: "My parents pay taxes every year."

As your teens move towards self-reliance and start getting jobs and cars, it’s the best time to begin preparing them for the things they’re likely to experience. We hope that this breakdown of financial terms for kids helps you start or get on the right track for helping your child embrace the lifelong skill of money management!