Whether we realize it or not, our kids learn by observing what we do. They see us spend money at the grocery store, and they see us spend money when they're going back to school shopping. They see money when they get their monthly allowance, but most of the time, they observe us spending money, so we need to teach our kids how to handle money wisely.
Why Is Financial Education Important for Kid’s?
Most parents will agree most younger kids don't really grasp the concept of money - where it comes from, how we get it, and how quickly it can disappear if they're not mindful. Even older children often don't fully understand what personal finance means, or how important money management is for their life.
None of us are financial experts at birth. We are taught what we know - the good habits, and the bad. That's why it's up to us to teach our children about financial literacy and help them develop healthy money habits to ensure a successful financial future.
At What Age Should Children Begin Learning About Money?
You want to start teaching your kids very early about money. At the age of three or four, they visually recognize money and start to understand its use to get things desired; therefore, this is a great age to start simple conversations about how money works. By starting these conversations with your child, money mindfulness will start to become second nature as they mature.
The 9 Best Ways to Provide Financial Literacy to Children
I've put together a list of nine ways we can teach kids about money. Each one comes from personal experiences that can teach valuable life lessons.
1. Let Them Practice Life Decision Making
An important part of teaching kid’s financial literacy is allowing them to make simple financial decisions at an early age. Allowing them to make good decisions with their own money, under your guidance, will promote good financial behavior, and help them make better spending decisions as young adults and in their adult life.
2. Ensure They Have Skin in the Game
It's been said over the years, that those that have everything given to them don't appreciate or respect those things. This also applies to money. This is why children need to contribute some of their own money in order to feel the value of what is being purchased - towards a car, or college tuition.
If they want a car, utilize the 50/50 rule instead of giving or buying them a car outright. If you pay for half, and they pay for the other half, their contribution will give them a sense of pride for saving enough money to help buy a car, and let them appreciate the work it took to earn the money for it. They will treat it with more respect, and take better care of it.
For college tuition, instead of paying for their college outright, implement the Rule of Thirds. Explain that you, as their parent, will pay for one-third of their tuition. They are required to pay for one-third of the tuition, and they can apply for scholarships to accommodate the last third. Your children will take their college education more seriously when they "have skin in the game".
3. Draft a Contract
There are occasions when our children want or need to borrow money. Write up a contract with all the terms included - any interest, due dates, etc. Have them sign and date it, and you sign and date it as well. By having it in writing, it can be reviewed, and if needed also be used as a reminder of the commitment they made when they signed for the loan.
By doing this, you're teaching financial literacy through accountability. You're teaching kids financial skills by showing them how to manage money wisely.
4. Teach Them to Budget Their Earnings
Children receive money through different sources. They might earn money from an allowance, chores, or get money on their birthday and on holidays. Encourage them to create a budget and stick to it.
We all know how easy it can be to see cold hard cash in our hand and spend it all without realizing it. By having our kids write up a budget, they've gifted themselves personal financial management.
Their budget provides them with several things: mindfulness, responsibility, and the desire to set financial goals for something they don't have money for yet. This is a good financial lesson to teach your kids - that delayed gratification is a money management victory. Handling money wisely creates good long-term consequences.
5. Be Observant
As our kids' financial teachers, we need to pay attention to what our kids are doing, and how they're spending their money. This doesn't just mean what they say, but what they actually do. Are they saying one thing and doing another? Did they borrow money from you, sign a contract, and not adhere to it, but are spending their money on other things?
If you notice their spending doesn't line up with their intentions, it's worth sitting down with them and revisiting specific financial topics on their spending decisions and money habits. Help them see how important financial independence is for them now, and in the future.
6. Pay Yourself First 50/50
Teach your kids that spending half of their money is okay, but they need to save money too. By teaching kid’s the habit that half of their money goes in their piggy bank, or bank account, you're giving them a solid financial planning foundation.
Explain the difference between putting money in a savings jar at home and into a savings account. With the savings account, they can watch as it accrues interest and sees their money grow, compared to the savings in a jar.
Describe to your kids, especially the younger children, how saving half means they will need to save double what they want to spend on a purchase. So if something costs $40 they will have to actually save $80; therefore, they'll need to plan to earn twice as much because half of their earnings goes to savings. This is a great idea really at any age because it will encourage putting money aside for other necessities.
7. Increase Their Responsibility
Give your children more responsibility every year. Allowing your kids to do more around the house gives them a sense of pride. It makes them feel they are trusted with important duties now that they are older.
By giving them more responsibilities, you are also teaching them to manage their time appropriately, and as they get older there will be more responsibilities in life as well.
8. Regular Communication
There was a time when families didn't talk about money. Finances were discussed, by the "adults" and behind closed doors. While these parents felt this was the right thing to do, it created problems for their children later, because they had no concept of handling money responsibly.
Sit down with your kids on a regular basis and have financial lessons. You don't necessarily need to discuss the household finances in depth, but they can be included in discussions about bills - the cost of electricity and how to conserve energy to keep costs down, or the price of groceries and menu planning so food doesn't go to waste.
Be honest and encourage them to ask questions if they don't understand. Normalize talking about money management. Financial education now means better financial skills later.
9. Lead By Example
Our children do what we do. Do we want them to see us spending money frivolously after we just told them we can't afford something? Or do we want them to see us writing up a budget (and sticking to it), creating a savings plan, and having open financial discussions as a family unit?
Be consistent. If we want them to succeed, we need to show them by example.
Build Wealth for the Next Generation Starts with Financial Literacy Now
It's vital to teach your kids about money. Instilling the desire to build wealth starts at an early age, so helping build and develop those long-lasting financial habits is critical for their future.
Providing your children with financial knowledge will generate financially literate adults. With your guidance, they will excel, so don't hesitate, and start your child's financial understanding today, it is something they will surely thank you for in the future.
Thank you for reading! If you're interested in navigating your financial journey further; tune in, subscribe, and reach out!