Money doesn't grow on trees.

If you have kids, you've probably uttered these words more times than you can count. But true financial education goes beyond the humor to include real lessons in saving, spending, and investing. These are much deeper conversations that should begin early in life and continue as your child matures.

"Children learn important subjects in school, but managing their finances is rarely one of them. This is a skill they'll use every day of their lives," says Jamie Gayton, EVP, Member Operations and Global Fixed Assets, PenFed.

This guide to teaching kids about money, broken down by major age groups, can help you bridge the gap in your children's financial literacy.

Toddlers (2-3 years)

The toddler years are highlighted by rapid physical and intellectual development, making this — believe it or not — an ideal time to start introducing simple financial concepts. Your main goal should be to help your child recognize money and associate it with purchasing things.

Trace Coins

As soon as your child can talk, begin teaching them to say the names of different coins while tracing the outside of quarters, nickels, dimes, and pennies. The various sizes and textures will make a tangible connection that reinforces learning.

[Piggy] Bank It

Give your kid a piggy bank or a clear jar and let them drop coins in whenever you have spare change. They'll enjoy watching the money disappear and hearing the rattle of the coins. Have them do the same with bills when they receive cash as gifts.

Go Shopping

Many children's museums replicate food markets and other retail spaces so kids can take turns being a shopper and the checkout person. You can create your own cash and carry (without the price of admission) in your living room by using pretend money to purchase cereal boxes, fruit, paper towels, clothes, and just about anything else you might find in a store.

Early Childhood (4-6 years)

Commonly known as the preschool years, early childhood is when youngsters start to read and learn basic math. What better way to develop these skills and foster their understanding of money than by weaving financial elements into their at-home education?

Play Games

Make a game of pulling the money from your child's piggy bank or savings jar and spreading everything on the floor. Then, have them count the number of pennies, nickels, dimes, quarters, and bills as they drop each one back into the container. But don't stop there — you can find scores of instructional games online to make learning about dollars and cents fun.

Read Together

Enhance your child's reading fundamentals and fiscal literacy by sharing finance-themed books before bed and at other story times. From Dr. Seuss to The Berenstain Bears, there are countless tales of adventures (and misadventures) with money that entertain and resonate with young readers. 

Up the Ante

Children learn best from observation, participation, and repetition, so practice reading about money together and using coins to count (one quarter, two pennies, three nickels...) over and over. Eventually, you can show your preschooler how coins and bills have different assigned values (one quarter equals 25 pennies) transforming one teachable moment into numerous occasions for learning.

Childhood (7-12 years)

A University of Cambridge study found that children develop basic money habits by age seven. This means the elementary and middle school years are one of the most important periods for real-world lessons about making, spending, and saving money. 

Sell Sweets

Lemonade or cookie stands offer numerous opportunities for financial instruction. Selling cool drinks or sweet treats to passers-by allows your child to:

• Determine a value for their product
• Set prices
• Ask for and receive payments
• Make change for each transaction
• Count coins and bills
• Calculate their profit

From setup to teardown, a lemonade or cookie stand can breathe life into the principles introduced by playing store in previous years.

And while sweets are a tradition, feel free to offer more natural options like homegrown vegetables — even better if your child has grown them!

Learn to Earn

Instead of simply giving your children a weekly allowance, pay them a small amount for doing chores around the house. This will help your kids understand that money is earned rather than given out freely.

You can enrich the learning experience by making your children use their own cash when they beg you to purchase something on a whim. Childhood is a prime time to instill the virtue of spending wisely by showing your kids how quickly their money can disappear.

Open a Bank Account

Opening a checking or savings account with your child underscores the importance of putting money away someplace other than a piggy bank. The lessons your child will learn as the two of you deposit cash and checks, manage transactions, view balances online, and visit a bank branch or ATM periodically will serve them well, now and in the future. 

Adolescence (13-18 years)

During adolescence, many teenagers begin to work and earn their own money. The financial freedom that comes with collecting a paycheck provides ample opportunities to illustrate how financial decisions made today can impact fiscal well-being for years to come.

Create a Budget

If you've never shown your kids how to create — and, more importantly, stick to — a budget, now's the time. When it comes to grocery shopping, start by having them help with meal planning and making purchase decisions (clipping coupons, searching specials, comparison shopping).

In time, begin to involve your teen in setting the monthly household budget. Be sure to demonstrate how you balance paying fixed expenses like rent or mortgage, utilities, and car loans with long-term saving and discretionary spending.

When your teenager enters the workforce, encourage them set up a spreadsheet to track cash flow. Monitoring when, where, why, and how their money comes in and goes out each month will teach your child to set limits and prioritize spending, both of which are crucial life lessons. 

Discuss Debt

One of the most critical financial discussions you can have with your teenager is the importance of living within your means rather than living on — or excessively in — debt. Your high schooler needs to understand that there's good and bad debt, but no such thing as "free money."

Credit cards and student loans are two topics that will likely come up during these conversations.

Credit Cards

Help your teen realize that when you use a credit card, you're borrowing money from a lender that you'll have to repay, with interest, at some point in the future. You can drive home the point by reviewing your monthly statement and explaining how balances that are carried to the next month can quickly compound and create substantial credit card debt.

Student Loans

Whether you have money set aside or plan to take out a student loan, sending your kid to college is expensive. Share these financial realities with your high schooler by discussing the costs of postsecondary education and the years of saving it took to build a college fund — or the future work it will take to pay off a loan.

Consider Investments

Traditional bank accounts provide building blocks for short- and long-term money management, but they do little to grow wealth. By introducing your teenager to simple investing, you can show them the power of compound interest and start them on a path of financial independence. Popular investment and saving vehicles to consider include:

High-Yield Savings Accounts

High-yield savings accounts function essentially the same as standard savings accounts with one main difference: the interest they pay. Over time, a high-yield account will earn considerably more than a regular savings account.

Certificates of Deposit (CDs)

CDs are safe investments that feature better interest rates than both traditional and high-yield savings accounts. The trade-off is having to leave your money in an account for a set period, which ranges from 30 days up to 10 years.

Individual Retirement Accounts (IRAs)

As untraditional as it may seem, an IRA can be an attractive savings tool for your teen. These accounts allow young adults to grow money over decades while enjoying a variety of tax advantages once they begin paying their own taxes.

Stocks

Although generally riskier than other investments, stocks often yield the highest returns on investment. Buying a few shares of an established company — as well as a startup or a business of interest to your child — allows your teen to (relatively) safely dabble in the stock market.

Bottom Line

The significance of teaching your kids how to respect, spend, and save money can't be overstated. By starting young, encouraging participation in the family's finances, and allowing your children to learn over time, you can equip them with financial skills that they'll use throughout adulthood.