My own kids learn about money by observing. Two of my children learn about money quickly when they see me using it to buy things. Rarely parents need to teach them about the basic concept as they can learn by observing. But preschoolers will always be unaware of most aspects of money which we often take for granted. Parents often think that preschoolers are too young to understand about financial planning. While it is true that preschoolers cannot understand power of compounding or unit trust or ETFs, but there are certain things they can learn which will benefit them later in life. So here are some things as parents we can teach them:

* Firstly, preschoolers can learn about the different denomination of money. While they don’t know that 100 cents equal to 1 dollar, they usually can recall which coins are worth more than which.

* You can tell your kids where their Chinese new year “ang-pao” money goes to (which hopefully is to their bank account!). You can show them their bank account statements and explain to them that their money is now with a bank for save keeping. You can teach them about interest by showing them the statement stating the extra money credit at the end of the month.

* When your kids see you taking out your credit card to pay for items, they may think the items are for free. You can explain to them that you have to use money to pay back to the credit card company later on and the items bought are certainty not free! You can show them your own bank account statement with the deductions because you paid for the amount owned to the credit card company. By doing this you teach them that the things we need in life comes at a price.

* While preschoolers are too young to learn about the concept of how to earn money, you can assign chores to them by asking them to keep their toys, wipe their tables and then pay them a certain amount for each completed chores. This helps to illustrate the concept of working for money.

* After earning that money, you can play games with them like “selling” them some toys which the preschoolers can “buy” from you. While doing this, you can teach them to put aside their earned money into a piggy bank or box so that they would not spent it all. This helps to teach them two things – purchasing power of money and saving habits.

* When you go about shopping, parents often talk to each other whether the items are expensive or cheap. You can explain to your preschoolers that there are certain items that are cheap and expensive. While it may be too abstract what this really means (since a cheap or expensive is dependent on its relatively pricing to “value”), at least you have started to introduce to them that there are things not worth to buy. In future, this can help them to be prudent in their spending and to ensure they have considered whether the items are value for money.

* Sometimes there are toys discount such as “buy one toy and get another free”. You can explain to your preschoolers that this is a good buy because they can get two toys for the price of one! In this manner, you have introduced to them the concept of discount.

Teaching your small children the concept of money is important because it develops a healthy attitude toward it. Good spending and saving habits will build a strong foundation for a lifetime of good money management.