Most probably, neither you nor your child’s school is teaching her a most important life skill — to work with money. Perhaps you assume she is too young? So, when should you start and what should you teach?

A good time to start teaching a child about money is when she first starts talking or asking about it. There are life-long benefits to teaching children good money habits and mounting evidence suggests that instilling habits like saving at a very young age, from about five years old, is the key to taking those lessons into adulthood. Advertisers cheerfully spend millions marketing to five-year-olds, because they know they are listening and they know they understand.

Teaching preschool-age children about money is a challenge, but the benefits are priceless.

First lesson — don’t swallow! If she can master that one and can distinguish between coins, she’s ready for financial education...

What your five-year-old should know about money:

• Money exists.

• Money can be exchanged for things.

• There is a difference between the various coins.

• Paper money is worth more than coins.

• Money can be saved and saving should be a habit.

• You often have to choose between two or three items.

• Once spent, money is gone.

• Distinguish advertisements from normal programming.

• People need to work to get money.

• You can give and receive money as a gift.

• You should keep your money safe.

• Different things have different prices.

• People have a limited amount of money.

• Some things are free.

• Some work is done for free.

• Some people don’t have enough money and we can help them by giving them some of ours.

Most of what children know they learned by example and experience, so keep this in mind when teaching them about money. Here are some tips for teaching preschoolers about money:

• Go shopping together. If there are two similar products, tell her why you chose the one over the other. Maybe it was cheaper? Explain what that means. Talk about the different brands, which ones you like and why. It doesn’t matter if she understands completely. Just having a discussion about these things will stimulate learning. Let her decide between, say, two different cereals. Talk about the reasons for her decision. Give her some money and let her make some simple transactions for you. Keep an eye out for sales and explain to her that the product is, for a limited time, cheaper than usual.

• Set a good example. The best way to teach your child about money management is by being a role model. Whatever you do with money, chances are she will follow your example. If you complain about not having money, but continue buying lots of unnecessary things, she won’t learn that it’s sometimes necessary to curb one’s spending.

• The ‘teachable moment’. Daily life offers various kinds of opportunities to discuss money. For example, when you go to the ATM explain to your child that you put that money there earlier and that it is not ‘free’. When you’re at the supermarket and you’re comparing products, explain to her what you are doing and what you are thinking. Preschoolers don’t have the greatest attention spans. It is therefore important to know when the ‘teachable moment’ has passed. When your child’s mind is wandering, keep the ‘lesson’ for next time. Any time money is earned, moved, spent, donated, shared, borrowed or saved provides an opportunity for parents to teach children about money and what considerations go into making financial decisions.

• Ask questions. What happened when you gave the man at the counter your money? Ask questions that cannot be answered with a simple ‘yes’ or ‘no’. In this way you will stimulate discussion and your child will learn more.

• Watch television together. It’s hard for preschoolers to understand the difference between normal programming and advertisements. When a commercial is on, talk about how they are trying to convince us to buy something. Talk about the products or services that are advertised. Are they cheap or expensive? Do you want to buy them? Do you have enough money to buy them? The ad break is often a great ‘teachable moment’.

• Make it fun! Learning should be enjoyable. Play games and sing songs. Purchase piggybanks that look funny. When you’re teaching your budding financial advisor about money, keep your manner light and chatty.

• Keep it straight and simple. The more you teach about money, the more questions they'll have for you. Keep the answers simple and if your child’s attention is wandering, keep the ‘lesson’ for next time.

• Give them pocket money. Giving children an allowance is possibly the best way for them to learn about money. They’ll learn to prioritise and save, share, spend and set their own simple financial goals.

  When to start giving an allowance depends on the child — does she know that money is exchanged for things? If so, she’s ready for an allowance. Some experts reckon kids as young as four can be ready for an allowance while others believe they should be a little older. You be the judge. Children with older siblings are usually ready for an allowance at an earlier age than only or first-born children.

  Some might disagree, but I would suggest keeping your child’s allowance separate from being paid for doing chores. Children have to know that they have certain responsibilities within their families which they should fulfil without expecting to be paid.

  Discuss what you expect your child to pay for with her allowance. At the age of five or six children might be expected to purchase things like candy, ice-cream, small toys, paint, crayons, etc.

  Let your children make their own decisions and mistakes and don’t give them a cent extra if they have misspent their money. Learning the hard way is often the best!

  It’s hard to suggest how big an allowance should be. Check with the parents of your child’s friends how much they give. However, the amount you give should be appropriate when considering your own financial position and the amount of children in your family. If you have many children or don’t have as much money as the other parents, explain to your kids that this is the reason why they get less than their friends. Don’t give your kids much more than their peers, even if you can afford to.

  The amount should be enough to cover the items you identified as having to be paid from your child’s allowance. It shouldn’t be too big, however, as you need to force your child to make financial decisions.

  Keep track of what your child does with her pocket money for a few months to see if you are giving an appropriate amount. Once you are satisfied with the amount only change it if your child’s expenses go up or your income drops.

  Regular increases on, say, birthdays are a good idea.

  Pay an allowance on the same day each week. Doing so may help your child learn to stretch her money until the next allowance is paid. Don’t bail her out if by the middle of the week she has spent everything. This is extremely important! She must learn to not overspend and learning the hard way is the only way!

  Paying your child's allowance with various coins and notes will teach her what each note and coin is worth.

  It might be a good idea to buy three piggy banks and divide the allowance into spending, saving and sharing amounts. For example, money in piggy bank A can be spent on anything, money in piggy bank B is for a more expensive item, while piggy bank C could go towards a charity of your child’s choice.

• Give them a goal. Have her save for something she wants, but can only buy after saving for a few weeks. Delaying gratification for more than a month at a time might be too much to ask of a five or six year old so start small.