It’s never too early to start teaching your kids the importance of personal finance and being responsible with their money. Many parents have no idea where to begin when teaching their children these valuable life lessons. We have put together a list of tips for you to get your kids on the road to being money savvy.
1. Start early
It’s never too early to start teaching kids the concepts that will help them be financially responsible. Children as young as 3 years old can start to understand the concept of waiting to get something they want. And this doesn’t have to be in terms of saving money. Teach them about waiting when they are in line for the swings at the park. The same lesson of delayed gratification applies to saving for money.
Another easy concept young kids can start to understand is where your money comes from. They see you take bills out of an ATM and think that is where you can get more money! Help them to understand the limited nature of money and the idea of hard work in exchange for reward.
2. Give them an allowance
Kids will learn best about being responsible with their money when they have income of their own to be responsible for. When they are ready for an allowance, you can start to teach them how to split their money into different budgeting categories – saving, spending, and sharing. Get clear containers for their money so that they can see it start to grow. But for this system to work, you have to stick to it. Make allowances a ritual in your home and create a seamless system.
3. Let them make the decisions
Once you’ve given your kids money to spend, let them make the decisions themselves. They might just learn some valuable lessons. Even if that means letting them buy something you know they will tire of quickly. And once their money is gone, you have to practice tough love! Don’t give them anymore until the established allowance time. This way they can start to understand that money is a finite concept, and you have to make decisions about how you will use it.
4. Set savings goals together
With the savings portion of their allowance, start to teach your kids about how savings works. For younger ones this can be saving up to buy a small toy to understand the concept of delayed gratification. It can’t be too large a goal or they might get discouraged in the process. Older kids can start to learn about compound interest, and you might consider teaching them about the world of investments.
5. Be open about family finances
Talking about money matters has been taboo for many families, but no longer! How can you expect your kids to learn about finances if they don’t have real world examples that they are experiencing firsthand? Let them in to your family’s budget process and spending habits. Even young children can start to understand mortgages and loans that the family has.
6. Teach responsible credit.
Teenagers heading off to college can benefit the most from understanding the use of a credit card and the process of building healthy credit. Co-sign for a credit card with them, but teach that you should only use it if you can pay the balance off in full each month. Help them to understand the importance that a credit card plays in building healthy credit and the benefits it has down the road when they want to buy a house, a car or take out a loan.
So, what are you going to do today to start your kids out on the path to financial success? It’s never too early to start teaching personal finance, and one day your kids will be thankful that you did.