Whether we admit it or not, money plays an important role throughout our lives. Learning how to responsibly and smartly handle money is necessary for our children’s future financial success. Unfortunately, that isn’t a lesson our kids get in the classroom. Raising financially savvy kids happens over time by talking about money, using everyday learning opportunities, and providing hands-on experience.
Teaching good money skills may be hard for some parents because they don’t feel financially savvy themselves. If they are in debt or not saving, some parents might feel they have no basis to teach their children about money. But kids are observant and learn by watching what we do. So, to help them learn ways to be successful, let’s forget any discomfort we have around this subject and teach our children to be financially savvy.
When You Spend It, It’s Gone
The first lesson kids can learn to become financially savvy is that money has value, and when they spend it, it’s gone. For example, when young children are with you, you might consider using cash rather than credit or debit cards. This is because cash is tangible. Children may have trouble grasping the concept of credit and believe that a magic card gets you anything you want.
Giving your kids an allowance is another way to help build money awareness. The allowance can be in exchange for taking care of household chores like making their beds, folding towels, or contributing to other family duties. Earning money for doing these tasks is a great first step in preparing your child for getting a job. The amount can be matched to your child’s age and ability to handle the money. For example, a 10-year-old could get $10 a month. Since the main goal is to let your children learn from their mistakes, try giving them total control over how they use their allowance. After all a mistake at 10 with $10 is better than at 30 with $30,000.
Needs vs. Wants
Another important conversation is the difference between needs and wants. Keep it simple using terms like necessary expenses and just-for-fun expenses. You should reinforce through your words and actions that it’s important not to spend more money than you have. One idea is to keep the just-for-fun purchases in check by not giving in to your child’s every request or going overboard yourself. But parents need to be careful about saying, “We can’t afford it.” A child may translate that phrase to “we’re poor” causing unnecessary worries. Instead you might say, “We choose not to spend our money that way.”
Finding the Best Value
Involving children in grocery shopping can be a good way to help them understand planning, saving and finding the best value. Take them with you to the store and let them hold the list to demonstrate the concept of purposeful shopping. Point out the different prices and brands and ask questions like “Is it a better value to get 20 ounces for $4 or 40 ounces for $6?” This helps them begin to understand value and they get to practice their math skills too. Back-to-school shopping is another great avenue for teaching them good money skills.
Banking and Credit
Today, many of us do our banking online and at ATMs. However, a bank can be another good field trip. It’s important for kids to see how the bank works to become financially savvy. Let them watch you make a deposit or withdrawal. Or sit down with a willing bank manager and encourage your child to ask questions. When you feel they are ready, help them open a savings account. This starts to teach them the concept of interest. Then you can show them how to manage and track its progress online. Once they’re old enough to get a job, you can help them manage a checking account and debit card.
As They Grow
Over time many other teaching opportunities will naturally present themselves. You might use an offer for a credit card and walk your child through what it means to carry a balance and pay interest to teach the mechanics of credit. Share with them how your family will invest for college expenses. Their first paycheck can be a good way to explain taxes. Apartment or house-hunting provides an opportunity to explain the concept of a mortgage. Continue teaching your kids new and more complicated concepts as they get older. As parents it’s our job to give them roots and wings, so they can survive and thrive in the financial world.
If you are looking for help to get yourself on a stable financial path or have questions that need answering, then be sure to visit our website today, call us at 217-605-8130, or click here to schedule a free, no-obligation consultation. We want to help you make more informed financial decisions. As your friendly financial guide and ally, we can help you create a budget, develop a financial plan, review your investment strategy, or structure a retirement plan that makes sense for your unique situation.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual, nor intended to be a substitute for specific individualized tax or legal advice.