My mother, the head of an elementary school, recently told me a story about one of her students that warmed my personal finance blogger’s heart. So I thought I’d share it with you all.

Part One: A Hobby

My mother’s student (we’ll call her “Emily”) loved to bake. She’d make coffee cakes and breads and desserts. She made so many, in fact, she had to give them to neighbors and friends because her own family couldn’t eat them all.

Naturally, this pleased the neighbors, and Emily’s mom was happy her daughter was developing such a useful (and tasty) skill. But she also saw the opportunity to help her daughter develop another important skill: personal finance.

Part Two: A Business

Like many successful enterprises, Emily’s began when she decided (with her mother’s prodding) to make a profit by doing something she loved. Here’s what Emily’s mom explained to her (and you can explain to your kids):

• Ingredients cost money. Sure, kids know this on some level – but making them aware of the exact dollar and cent amount is a good way to help them understand the value of money.
• People are willing to pay for baked goods. Again, this may be common sense for anyone who’s ever been to Dunkin’ Donuts, but kids may not realize that someone would want to pay them to do something.
• Making money is fun – and work. Emily’s mom helped her calculate the cost of each baked good she made, determine a reasonable price to sell them for, and promised her she could keep any profit she brought in – on a couple conditions.
• Saving is crucial. Emily’s mom opened a savings account for her daughter, who socks away a portion of her profits.
• Giving back is important. On the first day of school this year, Emily headed into the finance office to donate $30 of her own money – not bad for a nine-year-old.

Part 3: Learn from Emily

This story illustrates all the classic financial literacy advice – for one thing, your kids are never too young to start learning how to manage money. Plus, it serves as a reminder that we should be encouraging children to pursue activities that make them happy – profits can come from unexpected places.