4 Money Lessons to Teach Your Kids
Kids need to learn about money. If they don’t learn from you, they will have to learn from society; doing so may cause them to infer things about money you don’t want them to. Once a child is old enough to talk, you can start teaching him or her about money. A small child won’t understand complex monetary issues, but you can lead by example, and explain in brief terms that things we want cost money.
As your child grows, you can teach them more, and have them participate in activities that will help them learn effective financial lessons. Teaching them young, and continuing lessons as they grow up, will help them make smart choices, and to avoid financial pitfals later. If you want your children to be confident, comfortable, and careful with money, here are four lessons you should teach them.
1. Money doesn’t grow on trees
Kids who are given everything they want from their parents won’t have a chance to learn how to earn their own money or even the importance of money. Kids need to learn the importance of what money can do and where it comes from.
When kids are young, you can start by explaining where money literally comes from. For a young child, it might make more sense to explain it in a simple way: you give money to someone to get something, and they then give you a product or service. As the child grows older, you can explain more about the origin of money. Next, once your child is old enough, bring them to the bank, and then let them hold actual dollars and coins. Explain the cost of different items, and show them how many coins or dollars items cost. Lastly, make them work for their money. Don’t simply give them money each time they want something; they need to learn to respect money in order to appreciate it. You can find chores by age, or create a chore chart, to start.
2. Encourage them to set financial goals
If you teach kids to set goals young, they will be off to a great financial start. You can help children understand how saving money works by using actual jars or containers for different areas. If you do use an allowance, consider requiring your child to put aside money each week or month into specific jars. You could include a jar for new clothes, toys, activities, and so on. You don’t have to make your kids pay for all of their clothes or activities; the point is to help them see how to save.
Discuss goals with your child, and break those goals into short-term, mid-term, and long-term goals. A short-term goal might be that your child wants to save for a video game; a long-term goal might be that he wants to go to soccer camp next summer. Next, prioritize the goals with your child based on importance, determine how long your child will have to save for each goal, and how much needs to be saved. You will need to tweak this depending on how old your child is, but the important thing is for your kid to learn about saving and making goals for the future.
3. Teach them about debt
Ideally debt isn’t something your kids should need to worry about anytime soon. However, it’s best to teach them about debt early so they are prepared and knowledgeable about it, and so they can hopefully avoid heavy debt later in life. According to the Pew Charitable Trusts, eight in ten Americans have debt, and younger generations are the most likely to have debt. Although debt might be a necessity at certain points in your child’s life, it’s important that they learn about debt from you.
According to Debt.org, your own behavior and example alone will teach your children about debt, so you will need to think about your own behaviors and attitudes. It’s also important to teach your kids that sometimes debt is necessary (such as a house or education); you can teach kids about debt by advancing them small loans. It’s important that they understand the difference between (possibly) good debt, and bad debt, and also the repercussions that can come from too much borrowing.
4. Help them be responsible for their actions
It’s hard to see our children hurt, and it can be tempting to rush to their aid and try to help them or make up for their mistakes. However, if you want your kids to succeed financially in life, they need to learn to take responsibility for their own actions. You can teach them all you want about setting goals and avoiding debt, but at some point, especially as they get older, they have to test the financial waters on their own. So, if your young child spends all of his money on a toy, and then a few days later he wants to buy a different one, don’t give in and buy it for him. Remind him that he made the decision to spend his money on something else. If your teenager continually borrows money from friends, and eventually has to deal with angry friends when he doesn’t pay them back, this is a great opportunity to remind him about debt and being responsible with money by staying on a budget.
Your kids will have to learn about money sooner or later; you, and they, will be much happier and better off if they learn the important lessons from you while they are still young enough to make mistakes without facing serious consequences.