As adults, how we handle finances sends a powerful message to children. That’s why it’s important to model the healthy money management behaviors that we want the kids in our lives to adopt. It's valuable for children to begin to learn important financial concepts while they're young. It will give them many years of practice before their money choices impact their future in a significant way.
No matter what age your child is now, its never too late to begin teaching them important financial concepts. Monetary knowledge is valuable; here’s advice on how to help your child on the path to financial literacy and success.
Start With the Basics at a Young Age
Studies show that fundamental lessons should begin before age seven, as money habits and attitudes are already formed by then. For younger children, aged 4 or so, everyday activities like shopping or family outings provide a chance to begin teaching about money. Explain what money is and how it is used, showing them how money works is even more effective. Let them see you making purchases with cash and a debit/credit card, explain to your kids that you’re using your money to make purchases.
It’s also important to have them consider everything that costs money, such as toys, groceries, trips, even admission to the zoo. This will help put into perspective how many daily activities have a cost associated with them. Be sure to also point out things of value that may still be free. For example, visiting a playground or spending time playing with a friend is fun and doesn’t require money.
Show How Money is Earned
Discuss how you or other family members and friends earn money. Guide your children to consider that the people they meet each day such as teachers, bus drivers, mail carriers, and others, are paid an income.
Create Opportunities to Earn Money
When kids have money of their own, they can learn how to make decisions about using it. An allowance helps accomplish this by giving children first-hand experience with money. They learn the rewards of careful spending and saving and the risks of making impulsive spending decisions; and those risks are a lot smaller than they will be later in life!
Consider requiring your kids to do certain chores to earn their allowance. Household tasks can play an important role in teaching kids independence and responsibility. These tasks can change and vary depending on the child’s age and other factors. Chores help kids understand what it takes to make money, hard work. You can brainstorm with older children about ways to earn their own spending money by doing small jobs like dog walking, yard work, babysitting, and other tasks.
Build a beginner’s budget when teaching kids about money
When children are around age 8 it’s a great time to begin building a simple budget, by planning out their spending for a set time or a special event. You can start simple with a written spending plan for the upcoming allowance week. For teens, work with them to set up an account that has a set monthly savings amount, a debit account with card access, and a budget that lays out typical spending and goals per month.
Instill a Habit of Saving
Your kids’ early interactions with money will likely involve spending. They see you using it to purchase things, including things for them. So, it’s important to teach them from a young age that money isn’t just for spending, they should be saving money regularly, too.
Learning to save isn’t just an essential money habit, saving teaches discipline, delayed gratification, goal setting and planning. With younger kids, though, you’ll likely have more luck teaching them to save for short-term goals, like a toy they really want, rather than for the future. However, as they grow up this can be turned into longer-term goals.
Open a saving account for your child and take them through the process
What better way to help kids’ financial literacy than to have them manage their own money? By showing your children how you open their accounts, how to make deposits, and how to track their savings, you can impart valuable financial knowledge to them. Parents can make a household rule that part of the child’s allowance goes into their personal savings account each month and that the savings stay untouched, until it provides its owner a valuable opportunity. In turn, your kids will one day be amazed at the doors that their savings will open for them.
Leverage fun resources to teach financial topics
As you're teaching your children financial literacy, make the experience fun by leveraging fun activities and games. The whole idea is to make talking about and dealing with money a comfortable experience for your children. Need ideas? Check out It’s a Money Thing! Our free financial education videos to help children learn about money.
Creating a financially healthy child is important. Physical health, mental health, and financial health are all interconnected. When one area suffers, it has an affect on the other two. Educating your children about personal finance is a process that can take time. But if you put in the effort and communicate a clear message about money, you will instill good habits that will serve your children well. Another way you can set your child up for success is by taking advantage of our new Youth Savings Account promotion.
Sources and enhanced by Credit Union of Denver