How to Define and Explain the Economy to Kids

It's all about making and spending money

Father and Daughter Putting Coins in Piggy Bank
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Kids may ask you what the economy is when they hear the word discussed on the news. They may hear that the economy is in good or bad shape and wonder what that means. This question can be difficult to answer since adults themselves often don't know how to interpret the day-to-day economic news.

Provide an Overview

When we talk about the economy, we're talking about money being made and money being spent.

We're talking about who has money, who doesn't have money, and whether most people are getting richer or poorer. Here are a few facts to share:

  • The economy is made up of buyers and sellers. Most of us are both buyers and sellers. We buy what we want and need for our lives; we sell our time and expertise to our employers.
  • There are times when most people have more money than they need to survive. When that happens, the economy is doing well.
  • There are times when most people have too little money to buy what they need. When that happens, the economy is doing badly.

Don't Get Too Technical

Telling kids the definition of "economy" is likely to make their eyes glaze over, as it is an abstract concept. And discussing the specifics of the economy can be more than a young mind can handle. A better approach is to discuss how the economy's ups and downs may affect your family and friends. You can tell children any of the following about economic news:

  • "A bad economy means we shouldn't spend too much money right now. We should only buy things we need and take care of what we already have."
  • "The news is good. More people have jobs and can do more things with their kids. They can also buy what they need."
  • "Many people don't have jobs, so we need to be sympathetic to friends and family who are having a tough time right now."
  • "The prices of products are rising, so we have to think about the right time to buy things or buy fewer things because they cost more."
  • "People in that country don't have enough money or jobs, and they have too little food. Our country is sending them money and food to help them through this crisis."
  • "Yes, those people look very sad. That's why our church makes food baskets for them and raises money to help them find a safe place to sleep."

Games for Teaching Economics to Children

There are many ways to teach children about economics and how money works. Games such as Monopoly, Game of Life and Minecraft feature economic systems that allow kids to have fun while seeing how an economy works. Other online games and board games show kids how to manage money and resources as well.

The best way to understand the economy is to make financial transactions. Show your child how to earn money with an allowance. Teach them to save it, make a budget, make purchases, invest, pay taxes, and donate to charity. Discuss your financial life with your child rather than sheltering them from it. Let them get used to making economic decisions before the world requires it of them.