Making kids understand finances should be one of the priorities for every parent. The earlier you introduce the topic, the more comfortable they will be to handle their finances as they grow up.
How often do you discuss finances with your kids? Simple budgeting tips? Or involve them in financial decisions that directly affect them? Some parents feel it is not vital yet almost every decision they make will be influenced by their ability to handle finances; from credit cards to student loans.
As parents, finances are not always gratifying as sometimes you may find your credit score rating has gone down. You probably want to buy a house but don’t know if you can get some of the Best Mortgage Loans for Bad Credit. It is okay to make your kids see that you are not perfect and sometimes it is not as rosy as it seems.
The significant question here is, do your kids understand finances? How do you prepare them for the future?
1. Talk openly about money
As a family, it may sound awkward talking about money when your kids are around. However, money should be an open discussion so that they can learn a thing or two.
At times, you can even talk about salary negotiation when they are around. Their age should not be a barrier. They may not understand every money term you talk, but that should not be an obstacle. They understand with time.
Talking about money does not necessarily mean it’s only positive, talk about even the challenges and struggles.
2. Distinguish between needs and wants
As you know, there is a clear difference between needs and wants. Needs are primary and things you can’t do without such as food. Wants, on the other hand, are things that are not a necessity, you can do without them.
For children, you need to help them distinguish the two. Insist that needs are a must-do, but wants are optional.
3. Live by example
Children’s financial habits are formed at a young age. There are claims by a study by Cambridge University that the habits start taking effect at age 7. Most of these habits are ‘borrowed’ from their parents.
As a parent, live by example. Most children will grow up looking up to their parents who act as role models. As such, if you impulse buy, they will take the same trait as that is what they know best. You may not see it, but your children are watching closely, they quickly pick up habits.
Lead a life that you’d want your children to take after. Avoid impulse buying, draft budgets and keep your expenses on the low.
4. Introduce chores they can do to earn a small commission
Introduce the art of money when they are old enough to do tasks. Some simple house chores such as making their bed, cleaning the house or arranging the laundry area would be a great start. Give them weekly commissions depending on how much ‘work’ they have done.
Once children understand the art of earning money, they will ensure they work even harder to get more money. Such actions make them understand that money does not come in easily as they think.
5. Saving money
Children as early as five can do simple chores as discussed above. Where do they take the money they receive? Introduce a piggy bank or most preferably a transparent jar. The clear jar acts as motivation for them. If they put in $1 today, they’ll want to put in more so that they see the jar getting filled.
As the kids grow up, they understand the benefits of saving. Sometimes, they will need some toys, and they will take out a few of their savings to purchase them instead of asking you for money.
Also, teach them about credit. For example, your child comes and asks you to buy them some new dress they saw; however, instead of directly purchasing the dress, you agree to loan them, and they can always return with some interest.
Children learning about credit is important because they will understand that borrowing comes with a cost but stress on the importance of credit.
6. Make them save for their future
As parents, we want to save for a secure education for our children. However, when they are in their teens, make them apply for summer jobs and save part of their money towards their college funds. Make them responsible for their education so that they can learn the value of saving for their future. Take them through retirement saving as well.
Parents will always want what is best for their children. If it means teaching them on financial freedom at a young age, it will be worthwhile. Challenges will be there along the way but how you handle your finances will determine the future of your kids. Instill financial values and see the positive results you get.
Kids as young as 6 and 8 can learn to start a business, read more at Business for Little Kids – How We Got Started
How have you helped your kids learn about economics, finances and saving money?