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Do you teach your children about money? Do they know how to save money, budget, and spend wisely? Understanding the value of money is an important lesson that every parent should teach their child.
The sad reality is that kids today are growing up with barely any financial education at all. Dealing with money is something that is a daily part of life yet personal finance classes are pretty much non-existent in schools. The result of this is long-term negative effects, where young adults across the US are spending more than they earn.Even more of them are living paycheck to paycheck, having almost no money in their savings accounts or emergency funds.
Studies have shown that teaching your child about money will equip them with a deep understanding of the value of the dollar. It will also help them learn how to save for long-term goals and how to be responsible when spending their money. This is the foundation of financial literacy that will help them have good money management skills later in life.
Here are some of the benefits of teaching your child about money :
1. Children who open savings accounts at a young age grow up to have more assets.
2. Children who learn how to handle money from a young age without supervision grow up to become more confident about money and smarter about their finances.
3. Children who learn about money from a young age have fewer personal debts and are less likely to go for high-cost borrowing methods.
4. If you teach your child about the value of money from a young age, it significantly increases the chances that they will save for retirement.
5. It gives them a better understanding of how the economy works.
So it is clear that teaching your child about money is extremely important. But how do you even start to do it?
To teach your child about money management, you have to approach the process gradually in a step-by-step process. Here’s how to do it:
The first important lesson you need to impart to your child is an understanding of the things they want versus what they need. They need to be able to tell the difference. Here’s how to teach them:
Help them save their income
Get your child three savings options: an accessible piggy bank, a semi-accessible tin can, and a bank account. Next, show them how to split their income into three categories: wants, needs, and long-term savings.
Their income here is any money they get: their allowance, a birthday gift from grandma, or a reward for helping with the chores.
The wants go to the piggy bank. This is money for buying fun stuff and spending however they like. The needs go to the tin can. Sit down with your child and help them identify some of the needs in their life that they can save up for. The rest goes to the bank account. This is their long-term savings account. For a child, this should be money set aside for a major purchase like a new bike for younger kids or a car for teenagers.
For the best results, use a 50%, 25%, 25% ratio.
When they start spending a portion of their income however they like on the wants, they will quickly learn how much things cost and the importance of delayed gratification to save up for something bigger and better in the future.
And as they save up for larger purchases, they’ll get into the mindset of thinking about their future selves. This will go a long way in helping them learn to prepare for retirement early as they get older.
The next step is to give them a deeper understanding of how money works. This will require allowing them to handle money. Here are a few ideas on how to achieve this:
Give them an allowance
Your child needs to be able to spend money on their own without your supervision. The best way to do this is by giving them a regular allowance. However, a gift card or a coupon will also work. You will notice that your child will start being more careful about what they put in the basket as they shop because they know the money for it is coming out of their own pockets.
Send them to the store
If your child is old enough, you can send them to the local store to buy a few things. This will give them a chance to do some math on the fly in the store and figure out how much things cost and how much change they need. This is a learning experience for kids.
Play games involving money
There are many money-themed board games that are fun introductions to how money works. Games like Monopoly and Life are a fun way to introduce complicated money concepts to children. Please see the end of this guide for a list of fun money games to play with your child.
Your child needs to learn the value of money. They need to respect money without being afraid of it, which will allow them to spend it wisely. Here’s how to teach them this lesson:
Your child needs to learn the value of money. They need to respect money without being afraid of it, which will allow them to spend it wisely. Here’s how to teach them this lesson:
Lead by example
Your kids are going to learn more from your actions than from anything else. Herefore, you need to understand your own finances and plan for the future. If you feel like you are terrible with your own finances, while you may not tell your kids about it outright, they will see how you act around money and they will know.
Include your children in family budgeting decisions
Mealtimes are great times to talk about money. Start a discussion about, say, the vacation you are planning. Task them with finding out how much certain items cost. They can look up hotel options, how much flights cost, and so on. Tell them how much you plan to spend on the vacation and let them share ideas on what you can do to stay within the budget.
Take your child with you when you go to the bank or the ATM
This will give them even more insight into where your money comes from. Show them how a savings account works and how to deposit or withdraw money from it. Such trips are usually memorable introductions to the world of money.
The next step is to help your child learn how to make their money work for them. Here is how to do this:
Buy stocks for them
When they have a decent amount saved up, let your child invest some of their money in the stock market. Let them pick the stock they’d like to buy. Help them make the initial purchase. Then, every quarter, review the account statement with them. Show them how the value of their stock is going up or down. This will give them the basic skills they need to invest in the future.
Coupons and discounts come in many shapes and forms. You can get them from your mail, from apps, from newspapers, and online. You just need to know where to look.
So how can kids learn to use coupons and discounts, watch out for sales, and save money in the long run? Easy. You just need to get them in your own coupon and discount-saving process.
For example, if you enjoy saving newspaper coupons, your kids can take part in that. You can make a shopping list complete with matching coupons. Your kids’ job will then be to take your shopping list and find corresponding coupons that need to be cut out.
Take them to the store with you and ask them to find all the items corresponding to the coupons you have. You can then pay for the items and take them home. Calculate how much money you’ve saved from using the coupons and give that amount to your child.
While this doesn’t really save you any money, it turns every grocery shopping session into a learning experience for your child. They get to experience firsthand the power of coupons and discounts. Plus, they get a sweet little bonus as the cherry on top, which they can now split into wants, needs, and long-term savings.
