Children learn lessons about money by observing the habits they see in their household. Because of this, they can develop a myriad of views towards money, both good and bad. The sooner you start teaching your kids about managing money responsibly, the better prepared they will be when they start earning their own cash and opening their own bank accounts. Here are three lessons for helping your kids understand the importance of money management.
Lesson 1: Costs and Smart Spending
When you are out shopping with your kids, point out price tags and start a discussion about how much things cost. Explain that to earn money for the things you want, you have to work. Be sure to highlight the importance of spending wisely by prioritizing certain expenses before splurging on unnecessary items.
Depending on their age and the chores they are assigned, reward your children with a small weekly allowance. Encourage them to put money in a piggy bank or jar to save for items they want. If your child expresses interest in buying one thing, then suggests buying something else, discuss whether it would be possible to afford both. If not, your child will have to put off buying one. Discussing their options based on a budget can help them learn about the downsides of impulse spending.
Talk to your kids about the difference between needs and wants. Explain that sometimes people spend more money than they can afford for things they want and then can’t afford things they need. Emphasize the importance of setting and sticking to priorities and focusing on long-term goals and financial security.
Lesson 2: Bank Accounts and Credit Cards
Once your kids are old enough, open up a bank account in their name to teach them about saving money and to help them grasp a general understanding of how it works and why it’s important. If your kids get money for birthdays or holidays, or from part-time work, talk about how much to save for purchases, as well as long-term goals, like college.
Young adults often get bombarded with credit card offers when they turn 18. Talk to your kids, prior to these potentially dangerous offers, about how credit cards work. Cover topics from minimum payments to how interest can cause someone to wind up paying a lot more than the amount of a purchase, to how missed payments can lead to late fees and can negatively affect an individual’s credit score. Explain how using credit responsibly can help them qualify for a large future purchase, such as a car loan or mortgage.
Lesson 3: Giving Back
Teach your kids the importance of giving back. From local fundraisers to large charities, take the opportunity to explain not only the help they are giving to communities and people in need, but how it can be financially beneficial when tax season rolls around. If you learn about a fundraising campaign in your community or a natural disaster across the country, suggest making an affordable donation. This can help open their eyes even more when it comes to understanding the impact that having, wanting and needing money can have throughout their lives.
Keep the Conversation Going
You can’t teach your kids how to handle money in one conversation. This will be a gradual process that will involve many discussions. Explain things to your children in age-appropriate terms, encourage them to ask questions and be sure to set a good example.
