How to Define and Explain the Economy to Kids

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How do you define the economy to kids in a way they can understand? Start off simple. Tell them that the word economy comes from the Greek words for "household" and "manage." In short, the economy simply means managing your household. Through the economy, goods and services in a government or region are produced in a way to produce wealth.

What is wealth? The term generally means money but can also mean anything that is an asset or is traded.

Don't Get Too Specific

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 can be a difficult question to answer since adults often don't know how to interpret the day-to-day economic news.

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. It is better 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."

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, 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.