As parents, we understand the importance of literacy, and we encourage our children to be readers. Just as we introduce books early on, there is a great benefit to starting financial literacy conversations early in your child’s life. Although there are many ways of approaching financial literacy education, this article will highlight four basic steps to take to teach your kids how to manage money. The importance of parental influence and the value of ongoing and age-appropriate conversations cannot be understated.
Lesson #1: Earn Money
Depending on the age of your children, there are various ways that kids can make money. Allowances are one option. They present an opportunity for children to learn responsibility and time management, and give them a real opportunity to make decisions about the money they’ve earned. Setting realistic expectations up front including the amount of the allowance is key. An age-based system is one approach; my seven-year-old gets $7 a week for a certain set of responsibilities and my older children get a larger amount based upon their respective ages.
Lesson #2: Budget
As children begin earning money, they’ll need guidance on spending and saving, and will learn valuable lessons when allowed some control over spending their money. Begin by setting financial goals and set up a budget, indicating the amount of money that is allocated for planned purchases and savings goals. A budget can be used to note the sum of money coming in and the amounts that will be allocated for each savings goal. Have discussions about specific savings goals and the importance of having money for immediate spending needs and for giving to others. For younger children, piggy banks or glass jars are great ways for them to visualize their savings, and bank savings accounts are available for all ages. No matter where kids stash their money, they will learn to set aside earned or gifted money for both short- and long-term savings goals, as well as immediate spending needs.
Lesson #3: Delay Gratification
The concept of delayed gratification is another important life lesson to impart on children. Making smart spending choices is not always easy, and this is when a candid discussion of understanding wants versus real needs comes into play. Guiding kids to understand the difference between wants and needs, and supporting them in building their willpower, will serve them well as they grow into responsible adults.
Lesson #4: Comparison Shop
Demonstrating the importance of comparison shopping instills sound purchasing habits. Doing research up front and pointing out coupons and discount cards is a great way to show your children how much one can save with a little time and effort. It’s great to share stories about times you successfully shopped for a better deal or about a time that waiting for a sale paid off. It’s also helpful to involve children in making purchasing decisions. Let your kids make tough decisions, and explain to them that one needs to beware of scams or clever advertising along the way.
Ultimately, there are many ways to teach kids about money, and the needs and ages of your children will serve as a guide along the way. Don’t be afraid of tweaking and revising your strategy as you move forward. Financial habits learned at an early age become second nature; thus laying the groundwork early on is essential. Be sure to recognize positive behavior related to spending and saving decisions, as this surely will let your children know that you are paying attention!