Money is a topic that even adults have trouble comprehending, so even the thought of teaching money concepts to a child can be daunting. Many parents avoid speaking to their kids about this topic because they may consider their children too young or, quite frankly, parents aren’t comfortable talking about the topic of money themselves.
Teaching your children the role of money in our society and the importance of smart money habits while they’re young is tremendously beneficial; consequently, brushing off the topic can have long-term negative impacts on the future of your child’s financial success.
Turn your children into money-savvy adults by teaching them the financial lessons discussed below.
1. The Role of Money and the Value of a Dollar
As your child begins to ask you to buy this toy or that trinket, start to discuss with them the role of money as an exchange medium, i.e. how it is earned--by working or investing--and its value relative to their earning capacity, taking into consideration that a dollar is worth something different to everyone, depending on their earning abilities.
2. Create a Budget and Stick With It
Most people would agree that it’s better to tell your money where to go rather than asking where it went. Budgets gives you visibility to see where your money is spent. One of the best ways for a child to grasp the concept of a budget is to put real money in their hands. I suggest four main tiers to be included in your child’s budget: saving, investing, giving, and spending. Since children learn best by visual exercises, you can start with something as simple as setting up four distinct buckets—one for each category. This allows your child to see the progress that they’re making, while motivating them to continue saving.
When kids understand money and budgeting on a small scale, they build great habits for later in life. Budgeting and smart money transactions can prevent them from living paycheck to paycheck. Creating a weekly budget where your child can divvy up their weekly allowance lets them learn how to manage their money wisely and establish the right money habits at a young age.
Related reading: Budgeting Made Easy for Milennials
3. Delay Gratification
Are you guilty of racking up credit card debt? If the answer is yes, you probably don’t want your children to follow in the same footsteps. It’s easy to acquire the “buy now, pay later” mentality that credit cards offer. The instant gratification is appealing to so many, but then reality hits–-and so do the bills. Delayed gratification is a valuable skill that proves good things do come to those who wait. This is a great mindset to get children to adopt, and by learning this skill early they can use it to help shape other areas of life such as finances, careers, relationships, and health. So, how do teach a child to have patience? Show them in terms that they understand (i.e., they can buy a small toy now or they can save their money and buy a big toy later). I mean, what kid doesn't understand toy, right?!?
4. Let Your Money Work for You
Discuss the importance of using money that has been saved to earn more money through investment. This could be starting a business, or investing in various markets (like stock and commodities markets) or even in their local communities by building or rehabbing housing for people to live. The investment opportunities are endless. The key is educating your children about what types of investing are available to them and explaining that with investing comes both risks and rewards.
Related reading: Teach Your Children How to Manage Money: A Guide By Age
Children will learn some of their most important lessons from their parents, and financial lessons should be on the top of that list. Kids who are never taught the basic concepts of money may have to pay a lifetime of consequences. The habits that they learn throughout their childhood will remain with throughout their lifetime. Remember, teaching financial lessons doesn’t have to be boring; make it fun, and include the entire family! There are endless ways to teach these and other financial lessons; you just have to find which ones work for you.
Share your financial tips and advice for teaching kids about money in the comments below.