6 Tips to Teach Your Kids About Money
Practical tips for teaching financial responsibility.
Do you ever wish you could go back in time and give your 8-year-old self a few pointers on how to better handle money?
Teaching your kids about financial literacy at an early age sets them up to be confident and capable when it comes to money. There are many opportunities in everyday life to learn about money. Here are a few examples:
Tip #1: Explain budgeting basics.
How to allocate money between needs and wants (e.g., food, housing, transportation vs. entertainment).
A certain percentage should go towards savings.
Tip #2: Show how things cost in terms they’ll relate to.
For instance, you could say that a new car might cost a few years’ worth of food for the whole family.
The goal is to help them understand that you can’t always afford a new car – or the latest electronics.
Tip #3: Bring a list when you go grocery shopping.
Show the kids how to set a food budget and how to make choices to stick to this budget.
If they go over budget, they need to put something back or redirect money from another part of the budget.
Tip #4: Use their allowance or money gifted on birthdays as a teaching tool.
Explain how they can spend a certain amount on things they want, but should put away the rest for things they’ll need later on.
Tip #5: Pay kids for chores that fall beyond their regular routine.
This will give them a greater appreciation of the hard work required to earn money.
Tip #6: Explain how credit cards, debit cards and bank accounts work.
Teach them the risks of overspending and going into debt, compared to the benefits of saving.
Kids tend to enjoy watching their money grow, and opening a savings account for their money is an activity – and a responsibility – they’ll appreciate later on.
One recurring theme in the examples above is that people can’t always get what they want. Kids need to understand that financial responsibility is all about making smart spending and saving decisions with the money they have. Of course, if you lead by example, they can develop a healthy relationship with their own money.
If you work with a financial advisor, you can also discuss the concept of professional financial help. Compare your financial advisor to a doctor who looks after your health or a mechanic who fixes your car. Your financial advisor is simply someone who helps you maintain your financial health!
When it comes to teaching your children about money, remember that it’s a gradual process. As they get older, introduce them to more complex concepts and give them more practical tasks to develop their money management skills.