Teaching your children financial life best practices will help them develop a positive and constructive view of money empowering them financially long into the future.
Long-term money habits form at a young age and are typically a factor of childhood experiences and parental examples. Commonly, parents will have differing values and opinions when it comes to money. Therefore, it is important for parents to share these feelings with each other so that they may come to a mutual understanding of what kind of money habits they wish to instill in their children. Answering these questions with your partner can help focus your discussion:
- How will we create an open forum so that our family can discuss issues regarding money?
- How will we distribute money to our children? Through an allowance, payment for chores, or another merit-based method?
- What principles and habits about money have we been unconsciously teaching our children?
- How will we structure money lessons?
- How will we address the effects of advertising on our children’s buying requests?
Once you and your partner have agreed on the values that you want to pass onto your children the next step is to begin teaching them about money. Here are a few general rules of thumb to consider when teaching your children financial literacy:
- Provide guidance and advice rather than directing and dictating behavior
- Encourage and praise rather than criticize
- Be consistent while taking children’s differences into account
You will want to consider factors such as age, maturity, and ability when determining which lessons you will teach your children and when. Here are a few ideas to get you started.
1. Consider an Allowance – With a Caveat
Some parents do not believe in giving their children an allowance. Insisting that chores are done teaches good character and follow through on set expectations. However, there is also a lot of value in finding additional duties your children can do to earn a steady allowance. It is never too early to teach children about the value of doing a job and be paid for it. Just like in the real world, if your child fails to perform as expected, dock his/her pay. The point is that your child will learn the value of earned income and will set the foundation for healthy money habits in the future.
2. Play Money Games to Introduce Concepts
Money is all fun and games! That may not necessarily be true, however money and resource based games like Monopoly and LIFE can teach your child valuable lessons about spending wisely and basic financial planning. These games require you to allocate your funds strategically as a means to an end.
3. Look for Real World Examples
Money is all around us, which means there are always opportunities to teach. If you are at the store and you see a display ad for 10 percent off, help your child calculate how much they will save over the regular price. Before you order food at a restaurant, help your child figure out how much your meal will cost – and whether you can afford dessert. Real-world applications will resonate with them better than a lecture.
4. Help Them Open a Savings Account
Once your child has outgrown their piggy bank, consider helping them open a savings account. Go through the routine of going to the bank and interacting with the people. Explain what the bank does, how your money is protected and how it benefits the economy as a whole.
5. Help Them Use a Savings/Deposit Account
With a deposit and savings account, your child can learn the importance of distinguishing short term and long-term purchase goals. Delaying gratification for bigger spends. This also helps introduce the concept of a debit card. The funds in a savings account are like cash, and finite, and thus your child should spend their account funds wisely. Just like cash.
6. Help Them Make a Budget
Building a budget with your child will help them understand where their money is going, and what it is ultimately doing for them. Teaching your kids to budget at young age will help them grasp a few key aspects of personal finance: You can only spend what you earn, every action you take financially has a financial consequence, and you must live below your means to save. At a young age, this list will be short. However, the key is to run them through the exercise and help them follow through.
7. Introduce Online Money Tools
If your child has already established a deposit and savings account. There are a host of online budgeting and personal finance tool available on the web today. These tools can help your child become acclimated to the changing landscape of personal finance. Which is becoming increasingly electronic and cloud based.
8. Allow Them to Make Mistakes With Their Money
Along the way, just as in everything else, your kids are going to mess up. Letting them make mistakes now, and learn from them, will help them avoid the same types of mistakes down the road. Wouldn’t you rather your 10 year old make a $10 mistake now instead of a mistake worth thousands of dollars when they’re older and need to come to you to bail them out?