The lessons you teach your children can stick with them for a lifetime. So, when it comes to financial education, it’s best to start instilling money management skills early. According to Forbes, even three-year-old children can understand certain monetary concepts, including the basics of spending and saving.Where should you begin your teachings? This list of financial lessons can help you get started. Many of these ideas highlight suggestions that were gathered from a City-Data forum discussion.
Lessons About Earning Money
If parents give their kids money every time they ask for it, they can grow up underestimating the value of a dollar. To earn money, a person has to work for it, and that’s a concept you’ll want to pass along to your kids.
- Show Them How It’s Done. One way to make this point is to bring your kids to work with you if the opportunity arises. Such practice allows your children to learn more about your career. More importantly, it gives you the chance to explain and demonstrate that a paycheck is earned, not simply given to an employee.
- Educational Games. Another way to teach this lesson is by playing board games with your children that involve earning and exchanging currency. Monopoly is a classic example of a currency-driven game, but you might find board games more suitable for younger players as well.
- Give Them a Chance to Earn Money. When your children are old enough to work, encourage them to take on summer jobs. You can even pay your kids an allowance in exchange for running errands. Similarly, you can assist your kids in tasks such as collecting recyclable material and taking it to a location that accepts those items for money.
Lessons About Saving Money
Ensure your children know when to save and how much to save. If they grow up looking for the immediate gratification that comes with spending money, they might find themselves constantly low on funds.
- Encourage Saving. Reinforce the importance of saving by telling your children to put half of their birthday money into a savings account or a traditional piggy bank. They can spend the other half however they want.
- DIY. You can also show your children how to save money by undertaking DIY projects. For example, rather than discarding a broken toy and buying a brand new one, teach your children how to make small repairs. Remember to emphasize that sometimes it’s best to pay a professional to fix more complicated problems.
- Set Goals. Saving money might seem like a pointless exercise unless your children understand that saving now can have benefits later. Motivate your kids to save by explaining to them how long it will take to save up for an expensive item, such as a new video game console.
Lessons About Spending Money
Money management isn’t all about hoarding money. It’s important to know when to spend, as well.
- Judging Quality. Explain to your children that sometimes it’s smarter to pay a little extra for a high-quality product. Emphasize that cheap, low-quality items often have a shorter lifespan – but not always! Additionally, tell your children that different brands can sell similar products. Comparing the features and price tags of each product is an essential step to making a smart purchase.
- Discounts and Sales. Explaining discounts and sales is also your chance to teach your kids that the price of an item can change. Ask them if they’d rather pay full price for a brand new product or wait for the price to fall.
Lessons About Budgeting
Young kids probably don’t have much use for a budget just yet, but you can include them in discussions about your own financial planning. Explain your budget in a way that connects it to your work earnings. For example: How many hours did you have to work to pay off your monthly car payment?
- Understanding Needs and Wants. Children should be taught how to distinguish one from another. The best approach would be to avoid making emotional purchases. If your kid wants to buy something, tell him to think until the next day. If the child still wants this thing the next day, then he can buy it (if he has enough money).
- Giving Them a Credit Card. When dealing with older children, you can add them as authorized users to your credit card account. This helps them establish credit. It also allows you to coach them on how to avoid irresponsible financial actions, such as treating credit as an unlimited source of money.
Lessons About Investing
Teaching your children how investments can grow over time can set them up for future success. Explain to them how they can benefit from passive income with stocks or bonds. Don’t just talk about it though; gift your child with a savings bond so they can see it grow for themselves.
As you go through these lessons with your children, keep in mind that kids are extremely observant. If they see you breaking your own rules, you’ll be sending them mixed messages about money management. From resisting impulse purchases to building an emergency fund, show your children how to handle finances properly.
References and Sources
1. How and when to start talking to your kid about money? Retrieved from http://www.city-data.com/forum/personal-finance/3060253-how-when-start-talking-your-kid.html
2. The 5 Most Important Money Lessons To Teach Your Kids. Retrieved from https://www.forbes.com/sites/laurashin/2013/10/15/the-5-most-important-money-lessons-to-teach-your-kids/#1f4b34b46826