When it comes to financial issues, we tend to keep our children in a bubble. Many parents won’t do the money talk in front of their kids, since they don’t want them to worry. If you and your partner argue over money, then you should definitely protect your children from such talks. But if you’re able to discuss in a civilized manner, your kids should be part of the process. In fact, you should teach your kids about the importance of financial literacy as soon as possible. You don’t want to send them into the world without this basic survival skill.
7 essential tips: How to teach finance for kids
Teaching financial literacy for kids is easy. They are naturally curious and their minds are open to new concepts. They will understand the matters of money, earning and spending. You just need to explain them well.
Teach them about the difference between wants and needs
Why do we need money?
Sure; it’s great to have it when you want to go on vacations and buy cool stuff. But why do we need it? The basic concept of money is related to survival. Without it, we wouldn’t be able to cover our needs to eat, stay healthy, and have a shelter.
The first financial lesson is about needs. If your kid asks for a new toy, you should ask: “Why do you need it?” Let them think of their reasons. The kid will probably get creative with the justifications, but that’s okay. Inspire them to think about their real needs and decide: is this toy necessary or can they live without it?
You can still buy them the toy. But you don’t have to do it at the very moment. If they understand it’s not necessary and it affects your family budget in a negative way, they will appreciate the present much more later on.
Let them feel the consequences of making a money mistake
Pocket money for kids usually works on a day-to-day basis. Parents are afraid that if they give more money to their children, they will spend it in a day or two, and then they will have to give them more money.
But such a strategy doesn’t benefit the financial education for kids. Give them their weekly or even monthly allowance. In fact, you can let them manage the family’s weekly grocery budget, too. You’re afraid they will make mistakes? It’s okay. They will learn from this experience.
If the kid spends all pocket money in a day, you’ll make them a sandwich for school until the next payday comes. No one dies from such a lesson. It’s not harsh; but it’s very useful. They will realize that budgeting is an essential survival skill.
Teach them how credit works
You’re using your credit card and your kid sees that. They will get curious about it, so you get a chance to teach a great lesson toward financial literacy. Tell them that although the credit card is yours, the money on it is not yours. You’re borrowing it from the bank and you have to pay it back. Explain that the more money you take, the more you have to pay back. When your kid understands what credit means, they won’t likely steal the card when they get old enough to get in such trouble.
Show them how money works in the real world
Children should learn how to make their own purchasing decisions. When they start managing their own money, they will be prepared to do that with less bad choices. They will learn how much a certain thing is worth, so they won’t overpay it.
Children should learn how to make their own purchasing decisions. When they start managing their own money, they will be prepared to do that with less bad choices.
For example, when your kid becomes a college student, they will want to buy papers online. At that point, it’s important for them to recognize sites that offer reliable assignment assistance but are still affordable. The concept of cost-effectiveness will lead them to better results. Otherwise, they would splurge money on the most expensive service without getting value in return.
Teach them how time helps money grow
Are you teaching your kid how to save money? When they don’t spend all their money, they can keep them aside. When they pile up enough cash, they can get something nice for it. But money grows more on a savings account. $100 under the pillow will be the same $100 when you decide to spend it. But if your kid puts them on the account, they will grow. The savings account is great because it postpones our purchasing decisions. By the time your kid is 16, they may have enough of their own money to buy a car.
Teach them the value of delayed gratification
Your family invests a lot of money in your child’s education. They don’t see instant results from these expenses. It’s not like buying an ice-cream and enjoying it right away. But it’s a valuable investment and your kid should understand that. Researchers found that children who could delay gratification grew into more dependable persons. They were more self-motivated and were able to adjust better to different situations.
Every purchase has an opportunity cost
Your kid must understand that money is a limited resource. When you go to the store, you should have an exact budget and you won’t go beyond it. If they want to get a chocolate bar, they are missing out on the financial opportunity to get an ice-cream.
If your kid spends their entire weekly allowance on food, they don’t put money aside so they won’t be able to buy that tablet they want so much. That’s a valuable lesson to teach as part of their financial literacy, don’t you think?
Financial education for children can be fun!
Grownups take money too seriously. We’re happy when we get it and we worry when we spend it. When kids first encounter the concept of finances, they shouldn’t relate it to stress. However, they should learn that money comes with great responsibility. By teaching responsibility, you show them how to avoid the stress as much as possible.
The good part is that you’ll remind yourself of some useful lessons, too. As you’re trying to teach through examples, you’ll start being more responsible about the way you spend the family budget and increase the collective financial literacy. Who knows; maybe these lessons will help you save money for that vacation you desired for so long.