Some parents are hesitant about introducing their kids to the concept of money at a young age. While innocence is a gift, it’s important to instill the value of money in children and demonstrate the basic financial concepts of earning, spending and saving.
Financial literacy simply means learning how to manage your money effectively—in essence, how to save and invest to make every dollar work for you. And because many schools still don’t have basic budgeting as part of their curriculum, many kids aren’t exposed to the harsh realities of personal finance until they have entered the “real world” as unprepared adults.
Regardless of a family’s financial circumstances, establishing a positive, ongoing conversation about money can establish a great groundwork of knowledge for your child. And here are a few helpful hints on how to expose your munchkins to high-level money concepts without diving too deep too soon.
Walk the financial walk
Your kid is going to hear all sorts of things about money from others as they get older, and everything they hear can leave an impression on their tender minds. It may sound harmless at first, but it’s important that they get the basics from their parents rather than someone else who can create the wrong impression (knowingly or unknowingly).
On top of laying a strong financial foundation, parents have two things that kids lack when it comes to financial matters—perspective and experience. Be open about your finances. With older kids, share your hard-learned lessons to help them understand why it’s critical to treat money judiciously. Kids learn quickly by observing their surroundings, so setting a good example yourself is key.
Start small and build on previous lessons
Teaching your kids about earning, saving and spending topics can empower them with an understanding of how money can be a tool to build the future they want. While this is a very high-level notion, parents can begin with simple concepts such as counting coins, introducing them to pocket money, taking your kid to the grocery store to help them get a sense of how money is spent, and eventually demonstrating basic budgeting techniques (for the older kiddos, of course).
This will slowly help them grasp the concept of personal finance and how it plays a role in their day-to-day life. The real key is to start small and take baby steps when it comes to introducing complicated concepts, such as using the magical effects of compound interest to grow your dollars exponentially over time.
Consider offering kids an allowance
While allowances are often a hot topic for parents, offering children regular pocket money can have positive results. Having an income (no matter how small) allows kids to dip their toes in the world of earning and spending. Kids need to work for their cash (earning an allowance by completing chores, for example), and they’re also forced to make choices about how to spend it. Sometimes they won’t be able to afford both a candy bar and that new set of Pokémon cards. This underscores the crucial lesson that your income will be limited and they’ll have to prioritize their spending based on their “needs” versus their “wants.”
Imparting the right financial education will go a long way in helping your child formulate a sound financial sense which, in turn, will help them out in every aspect of their life. Now go help those dollars make sense!
Do you have other tips to teach your kids basic financial skills? Share your advice in the comments below.