The most common way that people learn about personal finances is from their parents whilst growing up. For this reason, it is vitally important that you begin teaching your kids about money from as early an age as possible. This way, when your kids grow up, they will be less likely to make bad money decisions, and less likely to fall into debt.
This guide details some important money lessons to teach your children:
Lead by Example
Children will primarily learn their spending and saving habits by observing their parents, so make sure to set a good example. Teach the importance of money to your kids and that money is limited. Show the steps that need to be taken in order to save money and avoid wasting it. Do not spoil your children by buying them everything that they want, as this could lead to them growing up undisciplined and self-indulgent.
Money Teaching Games
Teaching kids about money can be fun for you and your child. When a kid first learns to count, introduce them to money by having them count coins. Play pretend shop games at home, using fake money and props, then allocate a pretend allowance for your kid to spend.
When your children are a little older, play board games such as Monopoly, Game of Life, or Payday. Not only are these enjoyable to play, but they also offer valuable teachings about money making decisions, money management, and the realities of money in adult life.
Instead of just giving kids money when they ask for it, give them a modest, fixed weekly allowance. This is an important step for raising money-smart children, as it will teach them to prioritize with their spending habits, and they will also have to decide between spending their money right away, or saving it to put towards something bigger.
In order for the child to receive their allowance, they should be required to complete unpaid chores, such as keeping their room tidy, making their bed, and generally behaving well.
Paid Work for Kids
If your child or teen is at an appropriate age and wants more money than their weekly allowance, offer them some paid jobs around the house as a way to begin earning. Jobs can range from washing the car, raking the lawn, cleaning out the garage, and anything else that you would think appropriate. This is a great introductory way in which to show your kids how to earn money. The time and effort that they put into working will make them appreciate what they have earned.
Saving money is one of the big money lessons to teach your child. Get your child a piggy bank and encourage them to save a percentage of their allowance.
After awhile, take them to a local bank and open a savings account for them, maybe using their savings from the piggy bank as a first deposit. To motivate your child into saving, you could offer to match the deposits that they make, or give them incentives if they reach a certain amount.
Allow your child to withdraw the money under your supervision, but don’t cut off access to the acount, as this will cease to make it enjoyable for them.
Setting money saving goals for your kids is an important part of the good money management development process. If there is something big that your child wants, encourage them to save for it. Place a picture of that goal with a savings chart somewhere clearly visible, and together you can track the progress.
Before your kid buys something, you can discuss with them the pros and cons of the purchase, and make them think about whether or not they really want that particular item. Ultimately though, you should allow your child to choose what they spend their money on. If they make a poor decision, let them learn from their mistake. Use it as a teaching tool in which to encourage better spending decisions the next time around. Raising money-smart children means allowing kids to learn these lessons early on in life.
Giving Credit Card and Debt Warnings
When your child is old enough to understand, explain to them about the concept of credit cards and the possible dangers associated with them. Teach them that in certain situations credit cards can be useful if used sensibly, but that they should not be used if one isn’t able to pay off the balance at the end of the month.
Also, explain the importance of paying bills on time, and the resulting negative effect that late payments and debt has on one’s credit report.
Love and Approval
Teaching your kids about money will help to set them up for a brighter future. However, there may be times when it is hard to watch you child learn these lessons, so it is important to stay on track and not give in. Be sure to offer your child plenty of praise when they make good money decisions, and give them lots of encouragement when they make mistakes.