Give the Gift that Keeps on Giving by Teaching Your Kids About Personal Finance
We inherit many of our money habits and values from our parents as we grow up. As parents ourselves, it’s important to know and understand the extent of power that we wield over our kids’ money stories and attitudes about money, and to recognize the opportunity we have in teaching our kids about personal finance from a young age.
As with most aspects of parenting, there’s more than just one way to go about teaching your kids smart money habits. However, the tips below are a great place to start as you work to instill positive money behaviors in your kids.
1. Start with the Basics
Do you think your kids are too young to learn money lessons? They probably aren’t! In fact, research shows that money habits and attitudes are formed before the age of seven, so the earlier you begin educating your kids on money, the better. Obviously, you’ll need to tailor your lessons so that they’re age-appropriate, but there’s no reason that you can’t teach young children the basics.
This can be as simple as explaining what you’re doing when you’re out shopping with your kids, whether you’re using cash or a debit or credit card. Show them the receipt you receive with the amount you paid and talk about how you got the money to pay for shopping trips. By going over this repeatedly, your kids will be able to begin understanding how money works at a young age.
2. Focus on Smart Saving Strategies
Typically, a child’s first interactions with money will involve spending rather than saving. So, it’s important to be sure that you take the time to talk with your children about the importance of saving money, as well. Not only is this smart money management, but saving teaches children about discipline, goal-setting, and delayed gratification, which can help them in other areas of life, too.
To teach your children about saving, use a fun piggy bank or a jar that they can decorate where they can deposit any coins or cash they have on hand. Sit down with them to set a short-term savings goal, whether a specific amount or perhaps a toy that they want to buy, and make a plan for how they can save up for their goal. Be sure to offer affirmation and praise as they save to encourage them to stay on track.
3. Create Opportunities to Practice
In order to practice smart money habits, kids have to have money that they can manage. This is an excellent opportunity to get creative with your kids in discovering ways that they can earn money rather than just be given it. It’s important for kids to learn the value of earning money, so giving them certain tasks that they can do around the house for different amounts of money can accomplish two things at once.
A great option is to give your kids who live at home a weekly allowance in the amount equal to their ages. As your kids get older, provide them chances to negotiate for raises in their weekly “salary” by taking on more household chores and helping out at home.
4. Introduce Budgeting
One of the most significant lessons you can teach your kids is money management through using a budget. Simply giving them an allowance and letting them spend it how they wish won’t do much to help them once they’re out and living on their own. You want to help your kids learn how to track how much money they have coming in, how much they have going out, and how much they’re saving for the future.
Try giving your kids three jars, one for spending, one for saving, and one for giving. Empower them to split up their allowance between jars however they see fit. The more your kids help out around the house, the more money they’ll have to work with. To help teach your kids about budgeting for necessary expenses, charge your kids if they don’t do certain things that they’re expected to do around the house. This will help give them the opportunity to make decisions about what they’re willing to pay for and what they aren’t.
5. Show the Value of Giving Back
Cultivating a sense of philanthropy in your kids is just as important as instilling good money habits. Being able to share your values with your children is one of the reasons it’s so important to teach your kids financial lessons. Take some time to sit down as a family and discuss the organizations or causes that they may want to support. Then, let them choose who they want to give their money. Helping your children find a cause that they’re passionate about can infuse excitement and a sense of independence into their giving choices, which increases their chances of maintaining that philanthropic spirit as they get older.
6. Teach Kids the Magic of Investing
Sure, mastering smart savings strategies is important, but the key to building wealth lies in investing. This might be a bit trickier to teach to younger children, so you may want to save investing lessons for older kids. Start simply by explaining the basics of the stock market and following along with a company they know or care about for a few weeks. Talk through gains or losses and answer any questions they might have.
You might also want to look into opening a custodial investment account for each of your kids so that they have something to work with as they get older and learn more about the benefits of investing.
The Best Way to Give Your Kids Strong Money Habits? Practice What You Preach
Teaching kids smart money habits is an important and ongoing task and one that requires patience, creativity, and time. Most importantly, make sure you’re modeling the financial behaviors and values you’re trying to impart. This doesn’t mean you have to make perfect spending decisions or never veer off your budget, but it does mean talking through your own missteps with your kids so that they can become learning experiences. Though it may be challenging at times, stay committed and keep in mind just how important it will be for your children to grow up feeling financially empowered and having solid money habits.
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