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Age 8 Financial Literacy
Get ready for an amazing set of fun activities where you’ll learn about making smart money choices, opening your first bank account, and understanding the basics of between needs and wants. You’ll also dive into key topics like saving money, using a savings calculator, and recognizing quality versus cost to become a savvy money manager. By completing all the activities, you’ll be well on your way to becoming a money expert!
Learn About Finances
Start your financial literacy adventure by exploring the activities and games below. Don’t forget to take your time and enjoy the process.
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Learning to be good with money is similar to learning to read. It takes time and practice.
You had to learn letter sounds, how letters make words, and how words create sentences in order to read. That’s called language literacy. Financial literacy is doing that with money. You learn what the terms mean. You practice using money. You become a money expert.
Why do I need financial literacy?
Right now you might only use money every once in a while. But as you get older, you’ll use it more. How do you know when to spend or when to save? Are you making the right choices? What can you do better with your money? Financial literacy helps you feel confident, avoid mistakes, and make big decisions.
How do I learn financial literacy?
First, try to remember what it was like learning to read for the first time. It was hard, but it got easier as you went. And you still don’t know every word in the world. It can be hard to sound some of them out or know what they mean (like the word cognizant, that’s long and hard and it has a z in it!).
Financial literacy is the same. You start with the basics. After that, you’ll keep learning more.
Basics:
- Counting money
- Saving
- Spending
- Creating financial goals
Harder Stuff:
- Paying bills
- Building your credit score
- Long term planning
- Making big purchases
- Being careful with debt
You’ll work on financial literacy your whole life, so don’t worry if it feels hard now. Take your time on the simple stuff and then you can build from there.
It’s best to keep your money in an account at a bank or credit union.
Why Open an Account?
You probably keep your money in a jar, plastic bag, or piggy bank. But you can’t take a piggy bank with you wherever you go, and your money might even be lost or stolen. With a bank or credit union account, you won’t have to worry about those things.
Kids often open a special account with a parent or guardian called a joint or custodial account. That means both of you will usually have access to deposit (put in) or withdraw (take out) money.
Account Types
You’ll most likely choose between a checking and savings account to start with.
Checking Account: This is an account that lets you buy things with a debit card. When you use the debit card to buy something, the money will automatically come out of your account. That means you don’t need to carry cash around.
Savings Account: This account helps you save money and earn interest. Basically, a bank or credit union pays you a small percentage of the money in your account. You earn money without having to do a thing! But, if you want to get money out of the account, you have to go to an ATM or your financial institution.
What You Need to Open an Account
Opening an account at a bank or credit union is easy. You’ll usually need some money to put in, a parent or guardian, and an ID (such as a social security card or birth certificate). Some banks or credit unions let you sign up online. You may prefer to go into a branch so you can talk to the tellers. They can give you tips for how to get the most out of your new account and you can ask them questions.
Is My Money Safe in an Account?
Your money is safe in a financial institution because the government insures your money. The FDIC (Federal Deposit Insurance Corp) and the NCUA (National Credit Union Administration) make sure that up to $250,000 per account will be safe—that’s a lot of cash! Basically, the government makes sure you will get your money back even if there’s a natural disaster, a bank robber, or just about anything else you can think of.
Saving money isn’t as exciting as spending money, but it’s an important part of learning to manage money. If you think about it, saving is a choice between spending money right now and spending it in the future—probably on something you want even more!
Savings Plan
People have different attitudes about saving. Some people love to spend money and have a hard time saving or understanding why it’s important to save it. Other people save as much money as they can and have a hard time spending money, even when it’s necessary.
Even though everyone has their own savings habits, it’s always smart to save money for things that are happening soon and for things down the road. This is called short-term and long-term savings.
A good savings plan sets aside money for short-term and long-term needs, and for emergencies. How much you need to save depends on the amount you need in the future and how long you have until you need it.
Right now, you may not have any expenses to plan for, or even any money to save! That’s okay. When you do get money, practice saving so it’s a habit as you get older. Even 10% or 20% saved adds up. For instance, if you get $20 for your birthday, put away $2 or $4 for later. You may not have anything you want to spend money on now, but in the future you will and you’ll be glad you planned ahead.
Ways to Save Money
While you may use a piggy bank or wallet to save money right now, many people store their extra money at a bank or credit union. Savings accounts are popular because they keep your money safe but also available to take out, or withdraw, when you need it. When you’re young, you’ll need a parent or guardian to open a savings account with you. As you get older, you can take more control over the account.
Savings accounts also earn interest, which is money paid to you while your money is in the account. It’s like a reward for saving money from the bank. The amount of interest you are paid depends on the interest rate and how much money you put in the account.
Amounts under $100 will only earn a few pennies or dollars in interest, but it adds up over time. Plus, that interest is added to the total amount. Say you deposit $50 and earn $1.25 from interest in one year. Now you’ll have $51.25 earning interest the next year.
The money you keep at banks and credit unions is protected from loss, so it’s safer than storing it at home. Financial institutions have other accounts for saving money, too, depending on how long you leave the money in the account and how much you deposit.
You’re never too young to start saving money and thinking of your future financial success.
Interest
When you put your money in a savings account, you start earning something called interest. Interest is money the bank or credit union gives you for keeping your money with them. Interest is a percentage of the money already in the account, so the more money you have in the account, the more you’ll earn (ex: 10 percent of $10 is only $1, but 10 percent of $100 is $10).
The percentage you earn is called the interest rate. Interest in a savings account is usually added every month. The longer you keep the money in the account the more you’ll earn in interest each month.
This savings calculator shows saving and earning interest in action. The bars below will change so you can see how much money is in the savings account. The lighter part of the bar is the money you’ve put in, without interest. The darker part is how much was earned in interest.
To Use the Calculator:
Step 1: Enter a dollar amount next to Starting Amount. This is how much you would put into a savings account to start.
Step 2: Adjust the sliders to see how interest is impacted.
Monthly Savings is how much you’ll add to the savings account every month.
Years to Save is how long you’ll leave the money in your account.
Interest Rate is the savings account’s interest rate.
When you earn income, you get to decide how you spend that money. What you spend money on won’t be the same as other people, because everyone has different spending habits. Learning when and what to spend money on is an important part of money management.
Opportunity Cost
Every purchase comes with a tradeoff. This tradeoff is called the opportunity cost, and it means that when you spend money on one thing, that money is no longer available for a different purchase. If you buy a new video game with all your money, for instance, you won’t have money to buy a Lego set.
Money is limited, so before you make a purchase, think through other ways you could use it. What is the opportunity cost of a purchase? It’s also important to identify what is a need and what is only a want. Consider what you might want to spend money on down the road.
Spending Decisions
There are different reasons for spending money. Does it cost more than you have to spend? Or are you buying it just because it’s on sale?
You may want to buy something just because other people you know have it, or because a friend is pressuring you to make a purchase. This happens to everyone. Try to avoid spending money because of peer pressure.
Advertising also influences you to spend money. Not all advertising is accurate. If you’re researching a purchase, make sure you’re using reliable sources for information.
To save money, you may want to split the cost of an item or service with someone. Or borrow an item or trade a service, like doing a chore for a friend in exchange for using their bike for the day.
When it’s time to spend money, you can use cash, checks, and cards. Paying with cash is immediate—the money is gone right away. If you use checks, the money may take a few days to leave your checking account. With a debit card, there could also be a short waiting period.
If you use a credit card, you’ll make a payment now and need to pay the money back to the credit card company later. If you don’t pay the credit balance in full by the due date, you’ll owe interest on what you borrowed. This increases the overall cost of the purchase.
Even if you don’t have a lot to spend, making good spending decisions now is necessary practice for spending appropriately in the future.
Imagine you’re walking around the store and see two bags of cheesy chips. One is a popular brand that costs $5.00. The other is a generic brand for $2.50. How do you decide which to get?
The two main things you should think about are quality (how well made something is) and cost (how much money you have to pay for it).
We usually assume that something is better if it costs more and worse if it costs less. But that isn’t always true. You might not even be able to tell the difference between them.
Consider Your Options
First you need to compare the two options. Sometimes they are very different. Sometimes they’re basically the same. Often things cost more because they have a bunch of things that you don’t actually need. For example, think about a phone camera with a lot of lenses. Five lenses sounds better than two. But will you actually use all five? Is it worth it to pay extra money for them? For some people and features it might be, but not always.
Look For Reviews
Need some help? Ask people who’ve used the thing you’re thinking about buying. If they say good things, it might be worth paying more. If they have problems, you can avoid them. For example, if your friend loves the expensive brand of cheesy chips, you might decide to try them. But, remember, not everyone will tell the truth. Ads are meant to make something look perfect and ignore any problems. Celebrities are often paid to say something is great. If you can, it’s best to talk to someone you actually know.
Risk and Reward
Deciding which thing to get is hard because of risk (the chance something bad will happen). There’s a risk that the cheaper option is bad. Consider what will happen then. If it’s a small thing, it might be best to take the risk on the cheaper option. If it’s big, maybe not. You may also think about how much money you’ll lose on the more expensive option if the two are basically the same.
Think back to the cheesy chips example. What if the cheaper chips don’t taste as good as the expensive ones? If they still taste okay, then it’s good you saved the money. But if they taste so bad you don’t want to eat them, it probably would’ve been better to spend more and get the other chips. Then again, what if the chips taste the same? If they do and you buy the more expensive ones, it can feel like you wasted money.
Overall, it might feel like it’s always better to get the more expensive item, but that’s not true. Always consider quality and cost when deciding what to buy.
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