My grandfather’s financial insights mainly consisted of letting me know that professional athletes get paid way too much. Regardless of how you feel about that particular topic, sharing financial knowledge with your kids is a great way to help set them up for success later in life. You can help them develop practical money skills and a better understanding of personal finance by teaching them these 8 things below.
What in the world is money? And why do we have it? Don’t worry. These questions don’t warrant existential responses. Kids just need to know what’s going on when you hand someone $20. Knowing that money pays for goods and services and that its value is backed by the government is a great start. While you don’t need to explain the entire barter concept, let them know it’s an exchange, like trading two dimes for a juice box.
Lots of Ways to Pay
Your kids might notice that you used a check to pay the mortgage, a debit card for the utilities, bills and a handful of coins for a bottle of shampoo, and a credit card for a new mower. That simple lesson about what money is just turned into a cyclone of moving parts. So, you might want to walk them through the different forms of money. Let your kids take a look at each one and share why you decided to use one over the other in those particular situations.
All in a Day’s Work
Do your kids ever ask, “Where do you go all day while I’m at school?” Most people go to work to make money. And they make different amounts for different responsibilities. Giving your kid an allowance is a great parallel. If you decide to do so, tie the two together. Explain that you give them an allowance once a week for doing certain chores or having good behavior. Maybe some of those things are worth more than others. Similarly, you receive a paycheck each pay period because you performed your duties.
Don’t Spend It All in One Place
Every day, we determine need vs. want, worth vs. value and budgeting vs. indulging. It’s important to distinguish the difference between each for your kids. They may want a new bike, but do they really need it? Or do they want it more than a new outfit? Do they need it more than a new outfit? You can drive home the importance of purchase decisions to your kids without making it feel like it’s the end of the world if they misfire. Everyone has probably made at least one bad purchase decision in their lives, but you can overcome it.
Where Credit Is Due
What does it mean to pay with credit? When explaining this to young children, real examples help. For instance, if your child wants a piece of candy while you’re checking out at the grocery store, you can offer to buy it for them as long as they pay you back from their allowance. You can also point out whenever you’re using credit, whether buying new furniture or filling up at the pump.
Piggy Bank Bits
Our financial goals determine how much we save and why. Are you setting money aside for a new boat? Or, shoring up your emergency fund for unexpected car maintenance? Use examples from your life to illustrate the importance of saving money. You can help your kid create their own savings plan as well with a fun app for your phone or tablet. Maybe they’d like to save for a new train set, or perhaps they’ll have to mitigate replacing their sibling’s broken dollhouse.
And when it comes to setting financial goals, a fun, easy way is having them divide an allowance into three jars for saving, spending and sharing. Have them decide what they want to accomplish with each of these jars and the jars as a whole. They may want to have enough money in their spending jar to purchase a piece of candy every week, while also saving enough to purchase a new toy in a couple of months. Maybe they’ll put enough money in their sharing jar to help you pay for college one day. One can hope, right?
People give back in different ways, whether it’s donating money to the local animal shelter or letting a family member borrow money for a medical expense. Helping your kids see the implications that come with doing so will help them understand how to give money away responsibly without being scammed or causing undue burden on themselves. Have them create a list of things they’re passionate about and put a dollar amount next to each. This will help them prioritize what’s important to them. The higher the ranking, the more likely they’re going to feel good about giving to the cause.
This is where earning, spending, saving and sharing all come together. Sticking to a budget and learning the costs of things will help kids better understand money management. There are fun budgeting gamesfor students online, including ones available for phones and tablets, to show kids good budgeting techniques and explain other financial practices. You can also let your child know how your family budgets and spends money on different things, such as planning for the week’s meals or purchasing soccer gear.
Money plays a big part in all of our lives, and it’s important to start teaching young children about finances early so they can make smart decisions and secure a better financial future.