If your kids are in elementary school, it’s a great time to talk and teach kids about money. When children are this young, it’s important to keep everything simple and stick to the basics. Kids learn best by doing. Here are some ideas to get started:
• Discuss the difference between needs vs. wants. Help your child make a list of the things they need and the items they want. The items they want are things for which they should be saving. • Start a weekly allowance. Kids thrive when there’s structure, but it’s important to permit freedom so that they can envision their own ways to make money. • Teach choice. A good way to demonstrate that spending is not the only option is to utilize two storage jars — one for saving and one for spending. • Use cash. Elementary-aged kids can’t usually comprehend the idea of credit. Teach your child about the different monetary bills and coins by paying with cash when they are shopping with you.
Middle School:
Middle schoolers are more aware of the value of money, so it’s important to emphasize the importance of saving during these preteen years. They are also able to understand more complicated financial terms.
• Demonstrate how you save. Share with your middle schooler what you’re currently saving for. When you reach your goal, allow them to take part in the celebration. • Develop a budget. When shopping for something for your teen (like a new winter coat or school supplies), outline how much you’re willing to spend and what your preteen will be responsible for spending. • Introduce the concept of work. Middle schoolers can benefit from learning the concept of work and responsibility. Babysitting and lawn mowing are great things to suggest for first jobs. • Tackle more complicated money topics. Explain to your preteen concepts like credit vs. debit cards, introduce financial terms like stock market and interest, and show your preteen how to write and deposit a check.
High School:
If your child has grown up learning the money tips mentioned above, they are likely ready to have more control over their finances. Here are some ways to empower your high schooler to embrace their financial independence:
• Accompany your teen to open up their own savings account. Allow your child to be responsible for checking up on their account and managing their payments. • Use mistakes as teaching moments. If your teen overdrafts their account, it’s ok! It happens. Use this as an opportunity to understand the mistake and discuss how it can be avoided in the future. • Talk about college tuition. College is not cheap, and budgeting for higher education is critical. Talk to your teen about what they are expected to pay for, including tuition, dining out, organizational fees, and the cost of social activities, as well as any loans that they might be responsible for paying back after college.
Financial Literacy and The Importance of Teaching Children and Young Adults About Money
Due to the pandemic, many of us are facing the reality that our children are not going to be headed back to school in the Fall and instead will most likely continue with virtual learning.
There are many creative and engaging ways to teach life lessons outside of the classroom, even if you are not a certified teacher! One area that is important to talk about with children at any age is finances.
The sad truth is that most children are growing up without any financial education whatsoever, whether at home or at school. Since 2016, not one U.S. state has added personal finance to the K-12 standards.
This lack of financial basics is creating long-term negative effects. For example, nearly one-fourth of millennials are spending more money than they earn and 67% of Gen Yers have less than 3 months’ worth of savings in emergency funds.
Studies show that children benefit from learning how money works, beginning at a very young age. These are just a few of the benefits that come from financial literacy:
A better understanding of the United States and the world economy
Young adults who open a savings account as a child tend to have more assets as adults
Kids who spend and handle money on their own (with their parents’ supervision) tend to be more self-confident about money once they are on their own and less anxious about their finances
Greater chance your child will save for retirement
Shown to have a reduced amount of personal debt as an adult and a lower likelihood of using high-cost methods of borrowing
While many parents understand that there is value in teaching their kids about money, they often are not sure where or how to start. These are three ways to think about teaching your children about money:
Demonstrate and demystify the relationship between work and money: You can do this by including kids in family budget discussions. Meal times are a great time to talk to kids about money.
If you are planning a family vacation, for example, have them research how much items cost. They can look up airline flights, car rental rates, hotel options, local activities, etc.
Open a savings account with your child: A perfect opportunity to teach children about budgeting and saving is when they receive money from special events or birthdays.
Consider taking your child with you to the bank to open the account or having them help make online deposits. You can have them split the received money into thirds: a third can be used on themselves, a third given to a charity, and a third put into a bank account.
Also consider letting your child invest their money in the stock market. You can let them pick the stock the money is invested in. I remember investing in McDonald’s when I was in third grade! I was so excited as my mom explained that I would have a VERY small ownership in the company.
Then, each quarter, she would show me my account statement and I could see how the value would go up and down. These examples are powerful ways you can show children the power of compounding as well as build their confidence in saving for the future.
Play games involving money: Money-themed board games like Monopoly or Life are engaging, memorable introductions into understanding how money works. Play store or restaurant and include your children when you make trips to the bank or ATM machine.
As women business owners, teaching financial education to kids, especially to daughters, is very important.
Studies consistently find that women have lower financial literacy levels than men, even after accounting for marital status, education and income. This gender gap in financial literacy is observed throughout women’s lives. However, as parents we can stop this trend.
Parents are likely to pass down good and bad financial habits to their kids. Parents who discuss financial topics with their kids at least once a week are significantly more likely to have kids who say they are smart about money
We go to schools, colleges, and universities to complete our educated and start earning our livelihood. We take up jobs, practice professions or start our own businesses so that we can earn money to make our living. But which of these institutions make us capable of managing our own hard-earned money? Probably a very few of them.
Our ability to effectively manage our money by drawing systematic budgets, paying off our debts, making buying and selling decisions and ultimately becoming financially self-sustainable is known as financial literacy.
Financial literacy is knowing the basic financial management principles and applying them in our day-to-day life.
Financial Literacy – What does it Involve?
From simple practices like keeping a track of our expenses and understanding the need to spend money if we like a product to striking a balance between the value of time saved and money lost, paying our taxes and filing of tax returns, finalizing the property deals, etc – everything becomes a part of financial literacy.
As human beings, we are not expected to know the nitty-gritty of financial management. But managing our own money in a way that it does not affect us and our family in a negative way is important. We certainly do not want to end up having a day with no money at hand and hunger in our stomach.
Why is Financial Literacy so Important?
Financial literacy can enable an individual to build up a budgetary guide to distinguish what he buys, what he spends, and what he owes. This subject additionally influences entrepreneurs, who incredibly add to financial development and strength of our economy.
Financial literacy helps people in becoming independent and self-sufficient. It empowers you with basic knowledge of investment options, financial markets, capital budgeting, etc.
Understanding your money mitigates the danger of facing a fraud-like situation. A few strategies are anything but difficult to accept, particularly when they’re originating from somebody who is by all accounts learned and planned. Basic knowledge of financial literacy will help people with foreseeing the risks and argue/justify with anyone learned and well-informed.
What should you read on / get informed about in Financial Literacy?
Budgeting and techniques of budgeting
Direct and indirect taxation system
Direct tax slabs
Income and expense tracking
Loans and debt – EMI management
Interest rate systems: fixed versus floating
Business and organisational transaction studies
Elementary Book-keeping and Accountancy
Cash in-flow and out-flow Statements
Investment & personal finance management
Asset management:
Business negotiation skills and techniques
Make or buy decision-making
Financial markets
Capital structure – owner’s funds and borrowed funds
Fundamentals of Risk Management
Microeconomics and Macroeconomics fundamentals
While there are various media to learn about financial literacy, we recommend that you join a short-term, weekend program that helps you teach kids about money.
Here’s a scary fact for you: In the U.S., 40% of people have not set themselves up financially to afford even a $400 unexpected expense in case of an emergency.
Even more startling, nearly HALF of American families have a total retirement savings of $0. Wow.
Our young adults (and some older families as well) are DEEP in debt. We’re a financial mess!
Some experts argue that when teens are not taught beneficial money management, they are more impressionable and might develop their parents’ habits and relationships with money, good or bad. If we teach money management to children, they’re more likely to adopt a better relationship with money and develop better habits that will stick for life.
And sadly, what happens in a young adult’s financial life reaches into their personal life and health as well. Those who start to struggle with debt or have managed their money poorly end up more likely to battle stress and depression, have a higher risk of suicide, and even begin to see a negative impact on physical health.
Even our smartest teens and young adults are not equipped to start out their adult financial life on the right foot. Then dive into the
How to Teach Personal Finance to Teens
After learning more and more about what a massive problem this is becoming for our young Americans, I gathered a lot of input from students, parents, and teachers all across the U.S.
I’ve been getting really passionate about teaching this topic properly. Most of our middle schools and high schools are not integrating a complete personal finance class.
And those that are teaching a financial literacy course are having some challenges with getting it started.
Either they have to develop their own curriculum, or they’re given a standard financial “coursework” collection that is incredibly dry and hard to plow through. Not much is out there that is engaging for kids, collected in one complete sequential course, and actually designed with the learner in mind.
So I got down to business. I connected with teens, parents, and educators to collect all the info I needed on what would be a good fit. Then I started dreaming up the right blend of content and creativity, while incorporating all the brain research on how teen minds learn and remember!
Here are the tips and resources that I came up with to address these challenges and teach our teens the financial topics they need to know as they transition into adulthood.
TIPS:
1. Make it relevant. Teens are not going to feel connected to content that comes from a bank website, or is fed to them by an investment company’s “curriculum for personal finance.” Instead, print out some pictures of real cars that are for sale.
Allow them to choose the vehicle they’d want to purchase or lease in real life, according to their own preferences. Let them pick which home they’d like to rent or buy, and then use those real prices to set up the example.
Compare the lease prices and purchase prices over the long term and let them see how it actually works out. This will feel like a much more relevant practice example because it offers a “sneak peek” that feels closer to their present situation.
Teen brains are still developing, and lack the long-term perspective that allows them to really “see” their future selves. Buying a car feels more realistic than trying to imagine a future self as an investor or participant in a retirement account.
Along the same lines, when you show the time-value of money, focus in on the younger self and the feelings or imaginary statements that each investor would make. It’s hard for a young brain to relate to the “retired” person’s situation. They’ll internalize the lesson better by seeing what that person wishes they did as a 20 year old.
2. Show the possibilities and potential that can be within their reach. Draw in the teens who may feel like this is not for them. Instead of plowing through dry online content from financial experts, address your teens specifically.
Show them the stats to let them see how attainable “wealth” really is. For example, the page below has students representing certain stats from a survey of people with “high net worth” ($3 million +). Students discover that these millionaires for the most part grew up poor or middle class!
Then they see that the majority of them don’t have what you would imagine a millionaire’s yearly income would be. In fact, a quarter of them made LESS than $200k a year and still achieved a net worth of 3 million dollars or more! Suddenly, the students start to see that true wealth is not outside their reach, even if they are currently in a poor family.
They realize that wealth is about what you KEEP, not what you spend (and not even what you earn each year!) These stats make this content feel much more relevant to teens and worth learning.
This gets them really excited! Maybe your students never thought of themselves as the type of people who could become financially stable! It may have felt so far out of reach that they just tuned this type of content out before.
But now they may see that their choices over the next few years will be what sets them up for their financial future. This can make a world of difference for some students. They move on to set goals and see how to make this happen for themselves. Making these lessons relevant and actually ATTAINABLE goes a long way toward engaging students in learning personal finance.
3. Get hands-on. You can do this in so many ways with teens! Engage those brains by incorporating real practice. Get them invested! In the coursebook I developed, for example, it gets really interactive. Kids have to select one of two common budget proportions and make a chart of their own personal needs, wants, and savings goals.
Then, they break it down even further and have to get creative with representing their own budget! They end up with a color-coded pie chart with their own patterns to represent each sub-category and what percent it takes up.
They also have to make an entire flowchart of the payroll process to understand withholdings, W2s and W4s, and even take a look at filing taxes with a sample tax table as they learn about the 1040. Each step of learning finance needs to be interactive and allow for creative student OUTPUT, so they’re not just absorbing information, they’re actually synthesizing!
4. Include guided goal setting. I like to have kids pick a passion other than their own personal wishes to work toward. They pick a role model who supports a charity or cause, and they select their own “wealth-building” goals that go beyond their own personal bubble. Although teens can have a tendency to be self-absorbed in some ways, they also often have a real desire to make the world a better place. Focus their dreams on making an impact.
Our teens are amazing change-makers, and they will get just as excited about being a good steward for their money as they will about having personal wealth to spend! Take advantage of this and use a more selfless approach toward building wealth. Turn it around to show what they can do with it for the greater good.
Each student selects personal causes that they are passionate about, and dreams up goals of what they can do with their time and money. It’s a great way to show that good financial habits can impact the world, not just become a selfish pursuit.
You can teach your kids about finance through both your words and your actions—sometimes when you don’t even realize you’re doing it. Talking finance to a toddler may seem daunting, but a Cambridge University study found that 3-year-olds are already capable of understanding money concepts, and that the financial lessons they’ve learned by age 7 will carry over into the rest of their lives.
The approach for these conversations will vary depending on a child’s age. The littlest ones obviously won’t be able to grasp the stock market or the nuances of a credit report right away, but you can start simply by explaining the concept of money and having conversations about how to use it. For older kids, think tweens and high-schoolers, more in-depth lessons from a parent about managing money can help them have confidence (rather than fear) as they prepare for their financial future.
Teach Your Kids the Basics of Budgeting
A budget is a financial plan based on your income and expenses. Learning to budget is one of the most basic and essential steps in financial education because it teaches you how to set goals, live within your means and manage your money responsibly.
The simple act of pushing your toddler in a supermarket shopping cart can be a start to their budget education, as they watch you consider one loaf of bread over another based on value and other factors. Backing up those experiences with conversations will help them understand why you checked the price tag and returned one loaf to the shelf.
For preschoolers and kindergartners, tell them you have a certain amount of money to spend on things like food. Load up your cart while making note of what the items cost, and stop shopping once you’ve used up your budget. Talk through your process in simple terms and convey a can-do attitude. For example, when you find a necessary item on sale, tell them that you now have more for something else on your list (or for an extra treat). These talks should be fun, not frightening.
When your kids reach elementary and middle school ages, you can get more detailed. Once they seem mature enough, you can start to share aspects of your household budget, including housing, car payments, clothes and entertainment. Explain the finite nature of a paycheck and how to prioritize your spending and save what’s left over.
You can be more candid with teenagers—to a point. Focus on challenges and solutions, but avoid instilling fear about your family’s finances. If bills are making you anxious, tell them why and what positive actions you’re taking to alleviate the stress, such as adjusting your budget. Another benefit: If your teenager is familiar with the household budget, they’ll better understand why you said “no” to their latest spending request.
Demonstrate Healthy Spending Habits
Kids of all ages will pick up on your attitude and habits with money naturally. Some tough concepts may have to wait or will require more detailed explanation, but you can steadily introduce new topics over time by using real-world examples. You can help teach your children healthy spending habits with purposeful exercises as well:
Arrange a scavenger hunt. While at the store, ask your kids to find a specific item at the lowest price and read the numbers aloud to familiarize them with prices. Try this online too—a search for the best price for an item online can teach comparison shopping.
Set expectations. Before entering a store, clearly state that you will stick to your list. Verbalizing this intention can keep both you and your kids in line—and help you avoid fights as you pass the toy aisle.
Demonstrate being frugal. Let your kids see you make choices as minor as packing a picnic lunch instead of dining at theme park restaurants or as major as opting for a budget ride over the luxury model. Communicate how the difference in cost can be put to good use.
Turn impulse spending into lessons. When your child asks for something unnecessary, don’t just shrug it off. Instead, you might ask if they want the item as a future gift or want to set aside some of their allowance for the purchase, or earn extra cash for it. This can help them associate money with earnings and savings—a critical relationship that kids can grasp early on.
Let them practice with plastic. Bank and prepaid debit cards are great tools for kids between ages 10 and 16. They can make withdrawals and purchases without the danger of debt, and learn how to spend within a limit.
Allow Your Kids to Earn Their Own Money
Giving kids income-earning opportunities can get them to focus on purposeful work and grow their unique personal interests. The possibilities are virtually endless:
Young Children
Host a lemonade or baked goods stand for the neighborhood. You might even explain the concept of profit by going over how much it costs to run the stand. Bonus: Encourage them to donate what they earn to a local charity.
Sell gently used toys. Selling no longer used toys, games and clothing in supervised garage sales or online can teach them about value, and how to reduce waste.
Create and sell artwork, such as holiday cards. With your permission and help, they can even sell their crafty creations online to turn their hobbies and interests into real-life earnings.
High School Students
Take care of younger kids. Your child can babysit for local families or become a tutor, either in-person or online.
Start a business. Whether it’s helping out at parties, providing pet care services or washing cars, adolescents can learn the ins and outs of building their own business. They can also create products or scour thrift shops and make a profit online, or start up their own digital shops through websites like Etsy or Poshmark.
Obtain a part-time or summer job. A relatively straightforward but effective way for your child to learn the balance of time and money is through their first real job.
Some families also choose to give kids a regular allowance. Instead of giving kids money when they need it, spacing out their allowance can instill an early sense of how to manage money over longer stretches of time. If they come to you for more cash, let them negotiate—perhaps taking on a few more responsibilities around the house can earn them an increase for their contributions.
Whatever your children do, carefully monitor their activities and be available for advice about setting fair prices, collecting payments and managing proceeds. You can even use an app like Goalsetter to help both you and your kids manage their burgeoning finances.
Teach Your Kids About Debt and Credit
Your children need to be aware that each time you use your credit card, you’re borrowing money. It’s important for kids to understand that a credit card isn’t something that provides infinite access to cash, and that you’ll have to pay back any purchase you make (possibly plus interest).
Highlight the importance of making good on your agreements with your lenders by using credit responsibly (for example, making on-time payments and keeping balance low). You can go over the ways you’ve used debt to do things like buy a car or purchase your home. You might even explain what a credit report is, and why credit scores are important. Teenagers especially should be aware that a positive credit report will help them rent an apartment when the time comes.
Credit cards are probably the type of credit you interact with most frequently, and they can be a great starting point. You may be inclined to instill an early fear of credit card debt, but don’t shy away from explaining how to properly use credit, and the positives that can come with it. Go over the steps you take to maintain a low balance and responsible payment history (the two most important components of a credit score).
Minors can’t open their own cards until they’re at least 18 (they may have to wait if they’re unable to be approved), but you can look into kid- and teen-friendly cards in the meantime. By making them authorized users on your accounts, they can charge (as long as you agree) but won’t be liable for payments. This can come in handy in cases of emergencies. Arrange a lower credit line for them so it’s safer for you while helping them begin their credit history.
Open a Savings Account for Your Kids
Saving for the future is an important part of any budget. Banks sometimes offer kid-specific savings options for caregivers to open in their name, allowing you and your child to jointly operate the account.
Alternatively, you can consider a custodial account. Kids won’t have the same access to their money, since this type of account sets savings aside until they turn 18, but it can be a useful option for kids learning the importance of maintaining funds for the future.
Make Sure Your Kids Understand Digital Payments
The shift from cash to credit has already made spending more abstract. Further complicating things is the fact that funds today are commonly exchanged online with the tap of a button in an app. This makes it harder for kids to grasp that money is finite. Whereas older generations grew up balancing a checkbook and counting currency in a piggy bank, your kids may only ever know to check their bank balance online.
Approach the world of digital money with a few exercises to get your kids to associate virtual transactions with physical ones:
Make your family budget a team effort. Particularly when it comes to digital payments, your kids may respond better to the visuals of your budget if you take the time to map out where your spending goes and why. Even if kids can’t fully understand yet, include them on your bill-paying each month so they can witness you paying for what they saw you buy earlier.
Use an app like BusyKid or Greenlight to combine their digital and physical finances. With these, you can direct-deposit their allowances or chores earnings. They can even send some of their hard-earned dollars to their charity of choice, and get a physical card for spending.
Lessons for a Lifetime
The majority of parents or guardians say they encounter at least a couple chances a day to talk about money with their kids, but many avoid those opportunities entirely, according to a study by T. Rowe Price. Taking the time and effort for teaching kids about money will give them more guidance and help them be more prepared as they go out into the world on their own.
You can (gently) let your kids in on the family finances and approach money as a dialogue about decision-making, so it becomes a topic of curiosity and not taboo. However you choose to impart your financial knowledge, don’t forget the most important lesson of all: that money isn’t everything.
Children start to learn about money from early childhood. Parents and carers have the most important influence on how children deal with money in adult life. Teaching kids about money helps them manage their own finances as they get older. There are lots of age-appropriate ways to do this by keeping it simple and making it fun.
All children are different, but there are some developmental milestones that can help guide what to teach them and when:
Three and four-year-olds
You can start teaching pre-schoolers about money from when they start to talk and ask questions – when they touch, investigate and play with everything.
Five and six-year-olds
They’re starting to develop a deeper understanding of numbers and will be able to pay attention for longer.
This makes it a great age to move from playing to showing good money management.
It will still need to be fun – but you can start integrating more money-related skills into everyday life. For example, saving for a new toy or turning shopping into a learning experience.
Seven and eight-year-olds
They’re beginning to understand the difference between wants and needs.
This is a great age to talk about how they can start achieving some of their own wants through earning and saving.
Nine to 12-year-olds
At this age, children want independence. So you can focus on getting them to take responsibility for their own spending and saving choices.
Helping them learn about how to be responsible with their money can also give you peace of mind as they become more independent in their decision-making.
Teenagers
When a child becomes a teenager, their aspirations will be bigger – and more costly. From thinking about what they wear to wanting the freedom that comes from learning to drive, this is an age when money really starts to matter to them.
You can help them become money-savvy adults in three main ways:
The following lessons provide guidance, lesson plans, and activities for teaching kids about money early to understand financial literacy concepts.
Lesson One: Making Spending Decisions
From birth, a child has choices. At first, parents make the decisions, but before the end of the first year, children are capable of making some simple selections. If children are allowed to make easy choices as toddlers, then making decisions for themselves as they grow becomes less difficult. This lesson introduces guided, money-related, decision-making activities for children in preschool and kindergarten.
Lesson Two: Spending Plans
Preschool-aged children are capable of learning simple spending plans. Early training in categorizing money establishes patterns for future money-management behavior. This lesson introduces children to the concept of dividing their money into categories, namely “save,” “spend,” and “share.” We present activities that will help children understand that money is limited in quantity and must be divided for different purposes.
Lesson Three: Earning Money
Adults must earn money to provide for their needs and wants. In this lesson, children learn that money is earned and does not come free. Children also learn that money is limited in quantity. Early training in earning small amounts of money provides a foundation and understanding that work and money are connected.
Young children perform certain tasks at home just because they are part of the family or household. Children can do additional tasks to earn money for their spending plans. Children need to distinguish between shared responsibilities as members of a family and responsibilities that earn them money.
This lesson introduces young children to activities and ideas for earning money. The money earned helps children meet their financial goals. Remember that the financial goals for a preschool-aged child may seem simple to an adult, but they are not simple to the child. Children learn the concept that money is a reward for working.
Lesson Four: What is Money?
Money is the medium of exchange for most goods and services. Different coins and paper money have different values. Children need the ability to recognize the names and values of different coins and bills used in exchange for goods and services. This lesson helps children identify the names of coins and grasp their relative values in terms of purchasing power. We present games and activities that will help children acquire this knowledge.
All parents want their kids to grow up to be responsible adults. And being able to manage their finances (and eventually leave the nest!) is part of the big picture. Children grow up seeing their parents handle money, write checks, use an ATM machine, and purchase things with credit cards. Starting at a young age, teaching kids money will help them in their understanding of financial matters.
However, parents can do their children a big favor by giving them something else: the knowledge to manage money responsibly.
It is never too late to teach your children about responsible money management. While it is true that children can learn about money early in their lives, even teenagers nearing college age are not too old to start learning how to handle money responsibly.
Financial management may or may not be taught at school, so teaching financial responsibility at home is worthwhile. Additionally, children may run a greater risk of growing up to make bad financial decisions, if they do not learn basic money values at home.
Integrate money into daily life
Get your child involved with thinking about household money daily. There are many opportunities to use these lessons and help your child get a better understanding of money:
Take your child grocery shopping. Compare the prices of two similar items. Discuss why the prices might be different.
Let your child participate or watch when you pay bills. Explain the amounts when needed.
Let your child know how much money comes in each month, and how much goes out. Show how expenses add up.
Use comparisons a child can understand to help them understand the value of money
For young children or even older ones, talking about money may be abstract and difficult to handle. Get creative about your approach. Examples might include:
Instead of stating, “Milk costs $4.00,” you might say, “I have $4.00 to spend. I could buy a gallon of milk, two packages of chocolate chips, or two bags of apples. What would you choose?”
If you make $16.00 per hour in your job, tell your child that $4.00 in milk equals 15 minutes working at your job.
Give your child an allowance, but consider the frequency and amount
What you can give your child for an allowance will be determined by your household financial situation; however, consider the possible benefits of allowance:
The child has actual money to work with and learn how to handle.
The implications are real. Once the allowance is gone, the child needs to save more to buy another item.
If you are determined to teach your child about responsible money management and living within their means, then stick to the rules: keep the allowance dispersed at given times and do not extend “credit.”
Some financial experts recommend disbursing an allowance once a month rather than once a week. This gives the child a longer amount of time to learn how to manage a given amount of money. It may also make the allowance larger, again allowing for more management skills to be learned.
Model good financial behavior
You are a model for your children. Are you late on your bills? Are you living beyond your means? Get your own financial house in order and be honest with your children. Let them know why you are doing what you are doing, and then embark on sound financial management principles as a family.
Teach your children about choices in managing their money
Spending is not the only option for your child when managing his or her money. Saving, investing, or donating to charity are viable options.
Financial literacy is rarely taught in America’s schools. Therefore, the responsibility falls on the parents to educate their children about the value of money and how to properly manage their finances.
One of the most important life skills a child can learn is money management. In the vast majority of cases, children learn their spending habits and financial values from their parents.
Unfortunately, many parents don’t teach money management to children. In many families, the household finances are deliberately kept from the children. Some parents feel that finances are not their children’s business, or that financial matters are too complicated for their children to understand.
Others don’t want to burden their children with some of the more stressful aspects of money management, like debt and unexpected expenses. The problem with this approach is that it’s difficult, if not impossible, for a child to grasp the value of proper money management if they’re not involved.
Getting your kids involved with money is something that can be done as soon as they learn to count. It does not have to be complicated, nor does it require divulging details many parents don’t feel comfortable discussing with their children. For example, before going grocery shopping, clip coupons to show your children an easy way to save money. Grocery shopping is also a great way to teach kids the value of comparison shopping.
Choose an item on your shopping list, grab three different brands, and show your children that even though all the products are virtually identical, some cost more than others. The key here is to show your children two things: Higher prices do not always mean higher quality, and there are many substitutes for most name-brand goods. Comparison shopping is a basic money skill that is easily taught and will prove useful throughout your child’s entire life.
Another skill that children need is how to save money. Most children’s first instinct is to spend the money they have almost as fast as they obtain it. Knowing this, parents will sometimes take birthday and holiday money away from their children, put it in a savings account, and speak no more of it.
Children often view this as forced savings and regard it as just another one of Mom and Dad’s rules. This method makes it difficult for children to see any value in saving. From the child’s point of view, “saving” means Mom and Dad taking their birthday check away, and that they’ll never see their money again.
Rather than miss the opportunity to pass along a valuable lesson, get your children involved. Teach them that the first thing people should do with their money is paid themselves first. Before buying bubble gum, before going to a movie, have them put some money in the bank. It doesn’t have to be a large amount. Just help your children get into the habit of saving. The important point to get across is that saving is good. Bring them to the bank, open a savings account, and have your children fill out their deposit slips from day one. This makes saving an activity, not a mandate.
Review the monthly statements and show how money grows over time with interest. But don’t just concentrate on growth. Discuss any withdrawals your child made and why. This will teach your children to think before they buy. If started early and reinforced consistently, Junior will build up quite a nest egg before long.
An extremely important, and oftentimes difficult thing for parents to do is allow their children to make their own spending decisions. Many parents are fearful that the money will be wasted. Nobody wants to see their children waste money, but it’s better to let them make mistakes with small amounts of money while they’re young instead of with larger amounts when they’re older. Think about it. If a child who’s learning how to ride a bike falls off and scrapes his knee, will you take the bike away?
Of course not. You tell little Tommy to get back on because it’s the only way to learn. But if a child makes an unwise purchase, a parents’ first instinct is to control the money to prevent further waste. This is just like selling his bike after a spill. Allow your children to make money mistakes. That’s how they learn to avoid them in the future. Money management is like any other learned skill. It takes practice.
Money is a tool that can have a very positive influence on somebody’s life, but if it’s not managed properly it quickly becomes a burden. Teaching money skills to your children will promote habits that will serve them well for their entire lives.
It is a very wise idea to start educating your kids about money when they are young. Of course, we don’t want to deprive them of anything, yet at the same time, we want them to learn the value of money.
Many kids see money go in and out of their parent’s wallets and most don’t know how it got there nor how quickly it can disappear. Teaching kids about money from an early age will only contribute to their success later in life.
The benefits of teaching your kids about money when they are young are that they will soon learn how quickly it disappears when it is wasted on non-essential items, how to spend and save it wisely, understand the habits of wealth and help them to make better choices in life.
If you are an extravagant shopper yourself or are wasteful with money, it does not set a good example to your kids on how to manage money. You cannot complain when they are in their teens or adult life if they keep finding themselves in financial difficulty if you have not taught them well.
It is not up to our teachers in schools to teach kids all about money and how to manage it. The responsibility lies with the parents or the minders of kids! Ways to teach your kids the concepts and vocabulary about money are: Always provide your kids with the essentials to cater to their needs.
Then give them an allowance for a week or month (week for a younger child, a month for older children) and allow them to budget and decide how they spend their allowance over the period.
Provide opportunities for your kids to earn money for their savings. Encourage them to work for it so they see that effort is needed to create wealth and that you have to earn money.
From a young age, offer payment for “extra” work around the house and yard. For teens, encourage part-time or some holiday work. Teach your kids to break down their finances into categories or pools for which they contribute for different purposes.
Establish a saving system with your child with some short term and long term savings. eg: $2 set aside for charitable contributions/church, $2 investing (stocks, bonds, mutual funds), $2 savings for a short term goal like a toy, $2 savings for a long term goal like a swimming pool or college fund, $10 spending on incidentals like the canteen.
Make sure they have a piggy bank and savings accounts. Show your kids a family bill, for example an electricity bill. Set a task to see if you could work together for a month to cut back the bill from the previous month. Make more effort to turn lights and television off when not in the room.
There will be great anticipation to see the next bill. Show them how money compounds and grows. Teach about money in everyday activities, for example when a child breaks a toy they bought themselves, they realize the true value of money if they wish to replace it.
Play money games such as “Monopoly” to help learn money terms and vocabulary. Learning not to spend their savings wastefully will be an important lesson. Kids will feel proud and enthused by their own efforts to save.
Offer praise, encouragement, and congratulate them. If kids really want something big and exciting (that is costly too) for example a trip to the theme park, new plasma TV, or swimming pool, set up a fund for which the whole family can contribute. A jar in a secure place to put spare coins in may work well.
Regularly track the savings to spur on the enthusiasm. Work together and set goals as a family to earn the funds and feel a sense of pride once it is achieved. Kids will learn the responsibility, perseverance, and hard work required to buy such luxuries. By using some of the above strategies, kids will see the benefits of investing and saving.
Teaching them to not always expect money from others will help their relationships throughout life. We are teaching them that they too need to take responsibility if they are to cater for their needs and wants.
Tim Connolly 