It’s important to educate children about their finances. They likely won’t learn about it in school and they shouldn’t have to learn as an adult. To help them avoid learning these lessons the hard way, teach them while they’re young to be smart about their money.
1. Money doesn’t grow on trees. Children watch us scan a card at the store or press a button online and walk away with money, groceries and whatever else might be on our list. That can be confusing and cause them to think they there is an endless supply of money. It’s important to explain how those cards actually work, whether it’s a debit or credit card, they are tied to real money that must be earned or repaid. You can reinforce the lesson by taking them to a bank and setting up a savings account for them at a young age, so they can put money in and watch the balance grow.
2. Money is the reward for work we do. Young children watch adults pull out their plastic cards and may not associate the money we spend with the work we had to do to earn it. You can teach children about this aspect of money by giving them opportunities to earn their own money for their own work. They can do jobs around the house, meet their reading or academic goals, etc. This teaches them to have a work ethic and makes them more invested in the choices they make with their earned money.
3. If it’s worth having, it’s worth saving your money. Children are constantly bombarded by cool toys, games and electronics. It’s only natural for them to want these things, especially if their friends have them. But by giving in to every request, it doesn’t teach a very valuable lesson about how to get the things we want in life. The idea of saving for what we want is a critical one. Get kids excited about the benefits of saving by providing them with an opportunity to save for the things they really want.
4. Spending means making choices. One difficult lesson to learn and master is the idea that if they buy something now, they may not have money later to buy something else they want. Help them learn this lesson early by requiring them to make choices with their saved money from chores and gifts. They may want a Lego set and the candy next to the grocery register. Help them think about their goals so they make a smart choice.
5. Understand the basics of credit and investing. According to the most recent National Financial Capability Study from the FINRA Investor Education Foundation, nearly two-thirds of Americans don’t have basic financial literacy. This leads to irresponsible credit usage and less-than-wise investment choices. As kids grow older, they can learn the difference between renting and owning, how mortgages work and how interest applies to both credit and the investing world. That knowledge will help guide their behavior as they age.