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How To Teach Your Kids About Money
We all want the best for our children, but that doesn’t always mean simply getting them to eat well, using their manners, or buying them everything they ask for; it’s about them growing into grounded adults, and this includes financially. It needn’t be difficult teaching your children about money and you may learn a trick or two yourself along the way!
It’s important to realize that you can start teaching good money habits from a young age. A study by Cambridge University in the UK showed that children have formed money habits by the age of 7 years old. It’s really down to you to ensure they learn good financial habits.
For example, children as young as two and three years old will begin to recognize different coins so for this reason, build it into a fun game! Grab any spare change and any goods you can play ‘shop’ with. Set out a stand with some fruit and vegetables, tinned food, cereal boxes, or anything you have to hand. Your child can decide what they’d like to ‘buy’ and then spend their money by paying for their goods. As a result, this is beginning to teach them the process of using money in the real world at an early age.
In addition, young children learn well visually. With this in mind, one way to encourage them to start saving money is to use a large glass jar as a piggy bank. It is a great idea for them to put any spare change into the jar and let them watch the coins grow, together with you helping make a big deal out of it.
To emphasize, this doesn’t have to be expensive – any spare coins will do, such as the leftover small change from your last purchase. Young kids particularly seem to think coins seem much more important than paper money!
- As little as two dollars a week will reward them an awesome $104 at the end of the year – just do whatever comfortably fits your budget.
- As your child gets older, it may be an idea to put away a percentage of any money gifted by family and friends for birthdays and holidays.
- Spend some time with your kids going through old toys they no longer play with or clothing they have grown out of. Consider hosting a garage sale with any profit going into the jar. If you want to offer more encouragement, suggest that you’ll match whatever they make. This may also inspire them to sell the items they were holding onto for no reason!
Furthermore, as these savings build, it will give them an allowance so they can buy something themselves that they’d like or put towards something more expensive. Helping your children to buy something of their own helps them to understand the value of goods.
Of course, it is also a fun experience to visit the local store, let them choose what they want to buy, and hand their own money over to the cashier. Similarly, clipping coupons together can be fun, and then finding the items at the store. Your child learns what to look for, how to save, and also feels happy because they’ve been very helpful!
On the whole, they start to see how money works and that nothing comes for free.
In due time, as your child gets older, you’ll need to consider giving them an allowance and decide where they’ll put it. There are plenty of bank accounts that are fee-free with no minimum balance. Together, plan a trip to the bank to open an account and make an event out of it. With this in mind, remember to point out that banks ‘pay them’ to save money in the form of adding interest to their savings!
You could set a basic allowance and add a ‘commission’ each time your teen completes a chore, such as folding the laundry, taking out the trash, or washing the car. Earning money can be a great motivator and, as a bonus, you get helping hands around the home.
Additionally, look at these affordable saving challenges. You could also do one yourself and find an easier one for your adolescent.
Meanwhile, we know all too well that teenagers can be glued to their cell phones! Aside from watching the latest TikTok videos or posting on Instagram, their cells can actually become a financially handy tool.
- They can view their online banking, see their money grow, and, if the bank account allows, even set up specific savings ‘pots’ for whatever they wish, such as a college fund or a deposit for their first car, etc.
- If the bank account comes with a debit card, they can learn how to spend carefully, it can seem easier to spend when not using cash. Encourage regular and consistent balance-checking when they spend and how to budget with what they have left.
- They can set up budgets, with specific amounts for lunch at school, any necessary supplies for class, and money for the movies or a trip to the mall with friends.
- They can learn how to compare prices online. If they see something they feel they desperately need, such as the latest smartphone, show them how to shop around for the best price.
Equally important, ask if they truly need it or is it a spur-of-the-moment whim? Can they wait 24 hours to see if they still need it quite so desperately? By the time they’ve had some time to think, that expensive smartphone may not seem so urgent.
It always helps if you can explain how if they buy ‘X’ on a whim, they won’t have enough to buy ‘Y’ that they have spent time saving for. Helping them to make educated financial decisions will benefit them throughout their future.
Pre-loaded cards are a good idea for your teen, as they can use it to spend money, the same as a debit or credit card, but you set the limit. In other words, you deposit a set amount on the card, such as $50, and they cannot spend over that – when it’s gone, it’s gone, until you make another deposit.
In spite of teaching your children about ‘staying in the black’, a point frequently overlooked is that having no credit doesn’t actually give you the best credit score. If they have never borrowed credit, lenders don’t know if they are good borrowers i.e. whether they are likely to repay debt, and therefore are far less likely to lend.
Having a poor credit score will affect their chances of getting the best online payday loans or personal loans, rental agreements, auto finance, and mortgages, to name but a few.
By owning a credit card, with a small credit limit that is paid in full every month, they will raise their credit score and keep a low debt-to-income ratio (DTI), all favorable to lenders.
As an example, the card could have a $50 limit and your teen can use this to buy gas, and then simply pay the balance in full by the next repayment date.
Ensure your children understand the difference between good and bad debt by expanding their financial education as they grow older and their money management skills will adapt well to their new demands.
By beginning their money lessons at a young age, it will become second nature to be careful, less frivolous and they will go on to enjoy a financially secure life.
