As parents, we all want our children to grow up and become financially responsible adults. Whether they’re saving for college or learning how to budget their money, teaching your kids financial literacy is an invaluable skill that will help them as they grow up. But with all the competing interests and outside influences, where do you start?
Here are five essential tips to help you start teaching financial literacy.
Start Teaching Kids at an Early Age
It’s never too early to start teaching your kids about money. As soon as they start to show an interest in purchasing toys or playing with a piggy bank, which could be as young as age three or four, you can begin to introduce them to basic concepts of financial literacy such as saving, spending, and giving.
One way to begin is to give your child an allowance and encourage them to practice managing their own money. You can explain to them the importance of budgeting and how to use their funds responsibly.
Additionally, you can help your child set up a savings account at the bank and encourage them to deposit a portion of their allowance each week or month. By doing this, you’re teaching them about the benefits of saving money and helping them see the rewards of long-term money management.
Help Them Identify Wants vs. Needs
It’s important for kids to understand the difference between wants and needs. Children tend to be impulsive and think that everything they desire is a “need,” but teaching them how to differentiate between the two will help them develop a responsible financial attitude.
Start by discussing things that your child needs, like food and shelter. Explain that everything else can be classified as a “want,” such as games and toys. Use real-life examples, such as going grocery shopping and asking your child to distinguish between necessities (like milk and bread) and extras (like cookies and chips).
If your child wants to buy an expensive toy or visit someplace special, this can be an opportunity to teach them how to save up for a luxury item. Emphasizing the importance of saving for an item ahead of time and also determining whether or not the toy or occasion is important to them or just a fad can help them learn how and what to save for.
By helping your child understand the difference between wants and needs, you’re encouraging them to exercise restraint and make thoughtful spending choices.
Make Learning Practical and Fun
Teaching financial literacy doesn’t have to be boring. In fact, incorporating fun activities into your lessons can be very impactful. Here are some ideas:
- Create a savings jar where your child can deposit their change and watch their savings grow over time.
- Help your child set up financial goals that are important to them, like saving for a toy or a vacation.
- Play games with your child that teach money management skills, such as Monopoly or The Game of Life.
- Take your child grocery shopping and give them a budget to stay within.
Keep in mind that when you are taking time to educate your children you need to prepare yourself appropriately and approach these types of conversations with patience and empathy. Approaching these types of games and lessons with enthusiasm can go a long way to making them more enjoyable.
By making the process of learning about money fun and interactive, you’re helping your child understand the value of wise financial choices.
Teach By Example
Children learn by observing, so it’s crucial to model good financial habits yourself. Talk to your kids about your own financial decisions and explain why you make certain choices.
Parents should show their kids how to make decisions that prioritize long-term goals over short-term gain. For instance, you could explain how you take advantage of 401k matching at work, invest for future goals and use credit to build a good credit history. Taking these actions in front of kids will help them appreciate the benefits of responsible financial management.
In addition, if you handle your own financial stress and anxiety effectively, children will gradually develop the ability to handle the same emotions constructively. By being open and transparent about your financial decision-making, you’re helping to instill positive money habits in your children that will pay off in the long run.
Reward Good Financial Decisions
When your kids make good financial decisions, it’s good to acknowledge and reward them. It could be something as simple as an extra allowance or a fun family activity. This helps to reinforce positive behavior and to teach children that they can make a positive impact on their own financial future.
However, reward isn’t the only path that can be used to assist with money management or motivation. Younger kids aren’t inspired by monetary rewards like older children or teens, but loved ones’ quality time, attention, and verbal gratitude can go a long way toward encouraging positive habits.
By doing so, you’re helping your child develop the skills and confidence they need to manage their money responsibly and make informed financial decisions.
Set Your Kids Up for Success
Teaching financial literacy to children is an important part of parenting, and it doesn’t have to be a chore. By helping your child understand the difference between wants and needs, using practical activities that are fun rather than boring lectures, showing them good examples with your own money decisions, and rewarding positive behavior, you’ll ensure they make better financial decisions as they grow.
