As a parent, you want the best for your children. This doesn’t necessarily mean you want them to have the best clothes, the latest toys or coolest gadgets. Most likely, it means you want them to be safe and secure. And you want to lay a foundation that they can build upon to do well in life.
Even if you’re not teaching your kids, they will learn lessons about money one way or another. If you want to play a key role in shaping your children’s feelings, thinking and values about money, you need to give them the gift of financial literacy from an early age. Here’s how:
Start With the Basics at a Young Age
Once your kids are old enough to know they shouldn’t be sticking coins in their mouths, you should introduce them to coins and cash. Explain what money is and how it is used. Showing them how money works is even more effective. So let them see you making purchases with cash.
Even if you pay with a debit or credit card, explain to your kids that you’re using your money to make purchases. Show them the receipts with the amount paid. By doing it over and over again, it will become a habit to them.
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 and delayed gratification too. Saving teaches goal-setting, planning and being prepared. Saving also builds security and independence.
Help your kids get in the habit of saving by giving them a piggy bank or savings jar where they can deposit coins or cash.
With young kids, you’ll likely have more luck teaching them to save for short-term goals—such as a toy they really want—rather than for the future. Parents also can encourage their kids to save more by agreeing to match the amount they save dollar for dollar or by a certain percentage.
Create Opportunities to Earn Money
Kids need to have money of their own so they can learn how to make decisions about using it. Most people value money they earn differently than money they are given.
An allowance can accomplish that. However, you should consider requiring your kids to do certain chores to earn their allowance. There might be some chores the kids have to do without pay because they’re expected to help out as part of a family. But if they want to get paid, they have to complete other tasks.
Younger children might get a weekly allowance in an amount equal to their ages. Older children could be paid a “salary” that is deposited directly into their bank accounts each month. You could give them the opportunity to negotiate raises by agreeing to take on additional jobs around the house.
Help Kids Learn to Make Smart Spending Decisions
Allow your kids to make decisions about their money once they start earning an allowance. You could give them three jars for spending, saving and giving. Request that they have to put some of their allowance in each jar but don’t specify how much, leave the decision up to them.
Something else you can teach your kids is that spending isn’t always about buying things you want. Sometimes they will have to spend money on things they need when they’re adults and can make the choice to pay people to do things for them. So, if your kids don’t do certain things they’re expected to do to help out around the house, it will cost them.
In essence, they’re paying their parents to do those things for them. And the money comes out of their allowance. This allows them to make decisions about what they are willing to pay for and what they aren’t. This might help them realize, for every choice they make, there will be a repercussion, personal finance is about decisions.
Show Kids the Value of Giving
A key reason that it is important for you, as a parent, to teach your kids financial lessons is because you can share your money values through those lessons. If you value giving to others, you can instill that value in your children by helping make it a habit for them from an early age.
You could do this using the spending, saving and giving jars, or you could help your kids set up a special savings account for giving.
Then help your children plan their giving by discussing what groups or causes they want to support.
Model Good Financial Behavior
If you want your children to develop good spending and saving habits, they need to see you making smart spending and saving choices. In short, practice what you preach. And preach with consistency. Educating your children about personal finance is a process that can take time. But if you put in the effort and continuously communicate a clear message about money, you will instill good habits that will serve your children well.
Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.