Basic Financial Terms for Kids

For most kids, learning about money is almost like learning a foreign language. The words will be new, and you’ll describe a way of doing things that may seem bewildering at first. Sit down with your child and review these basic financials terms that will assist you when introducing your child to money.


Coins and paper bills are cash that can be exchanged for goods and services just about anywhere. When introducing  the value of money, make the dollar bill your baseline. Explain that coins are fractions of a dollar, while $5, $10, $20 and $100 bills are multiples of a dollar.


Say that a check is a written instruction telling your bank to take money out of your account and to put it in the account of the person whose name you’ve written on the front of the check. Point to a blank check and explain that the amount to be transferred is written in numbers on the first line and in words on the second line. If your child wants more information, discuss the account and bank numbers at the bottom of the check. Underscore the importance of your signature on the check and the need to keep checks in a safe place.


Money you owe is debt. Tell your child that it’s smart to keep debt low, so service charges, penalties and interest don’t take money out of your pocket. However, the wise use of debt, such as a mortgage, is beneficial.

Savings Account

Here’s your chance to introduce your child to the glory of compound interest; a basic tool in building wealth. Tell your child that the bank pays for the use of your money (interest) and the bank lends the money to others to build houses or to buy a new car. Make it clear that when you deposit money in a savings account, it’s put to work, and therefore expands the economy. It doesn’t just sit there like a piggy bank.


A mortgage is a loan from the bank to buy a house. It’s what makes homeownership possible for millions of people. You transfer the amount of the loan to the builder or previous owner of the house and agree to pay the bank a predetermined amount, plus interest, each month. Explain why this is a wise use of debt.

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