How to Teach Kids About Money
With financial dangers lurking around every corner, it is more important than ever that you teach your kids about money. Teaching your kids about the importance of money and how to make money goes further. These “how to save” lessons are economic skills your children will be able to utilize every single day for the rest of their lives.
Also, these lessons will likely help them avoid the many pitfalls that others face, such as being waist deep in debt or worse – filing for bankruptcy. In this consumer-driven economy, it’s hard to thing of more impactful training you can impart to your children than economy-based skills.
While the lessons of money management are important to learn, they can be difficult to teach to a child. The following are our ten tips to help you get started teaching children about money.
Ten Tips to Help Teach Your Kids About Money
Advice for parents and adults teaching children about money.
1. Start teaching your kids about money as soon as possible. The suggestion that I have seen most is to start when the kids are able to count, so bring money into the picture around kindergarten or first grade. Money is a complicated subject, so the younger you start, the more time you have to ingrain important concepts such as saving into them.
2. When your kids are old enough give them an allowance. Give your kids a set amount of money per day, week or month and give it to them in such a way that they can easily put some aside to spend, while keeping some to save. For example, if you give them $1 a day, give it to them in all quarters so they can easily save $.25 a day, while spending the rest.
If you give them $5 a week, give it to them all in dollar bills.
As an added lesson, you can even have your kids do chores in exchange for their allowance. This teaches your boys and girls that money is not free, but that it needs to be worked for. From my own experience, I valued my money that much more when I actually had to sweat for it, as opposed to it just being given to me.
3. Use a clear plastic jug or see through piggy bank. Kids are visual. They need to see everything with their own two eyes.
So by using a see-through piggy bank, children will be able to see first-hand how quickly money can add up, when they are trying to save. Doing this will also make the time to save up for bigger items much more bearable, since the child can see that they’re getting close.
It might even help when they spend money, because your kids will be able to also see how much of their savings has been depleted when they purchase something. This might make a young mind think long and hard before making their next purchase.
4. Take your kids shopping and show them first-hand how to make money go further. There are a number of ways you can do this. I would find a grocery item that I purchase regularly and show my child how it can cost differently at two different stores.
When you shop around for the best deal, you have more money leftover. Purchase both items and have your child do the math so they can see first hand how much can be saved by “shopping smart”. Younger and older kids learn by example, seeing how you handle your business, so teach by example.
5. Open a savings account, preferably one that pays interest. You want to show your kids that saving money is important to do. Make them feel grown up by opening up a savings account in their own name.
Show your kids how the bank rewards consistent saving by rewarding a small interest payment a couple times a year.
6. When your kids are old enough to work, make them set aside a certain amount of money each paycheck. My mom did this with me when I first started working. I was required to put aside 50% of every paycheck for savings.
I was able to do whatever I wanted with the other 50%. Learning to hoard money will ingrain the benefits of saving, since your kids will be able to see their savings grow weekly/bi-weekly. This will double as a lesson in budgeting money from paycheck to paycheck.
7. Start a family 401k plan. Most kids or teenagers don’t bother to consider saving up for college tuition, their first house or retirement. But you can still show them how different investing plans work (like the 401k) by setting one up on your own. Don’t assume someone else will teach your children these important lessons.
Pledge to contribute a given amount for every $1 that your child puts away. They’ll see how fast this money adds up which will be more of an incentive to save their money.
8. Explain the dangers of credit cards, the earlier the better. It’s important for your kids to realize that credit cards actually cost them money to use, and that credit card fees and/or interest rates are large.
It should be taught that credit cards should be used for emergency purposes only. You can really drive this lesson home by getting your teen a credit card with a small $100 or $200 limit (with no increases) and make them work and pay off the balance each month. This will also double as a lesson in credit.
9. If kids make a mistake or blow their money, let them deal with it. If your kid wanted a toy or your teenager needs gas for his or her car, but they blew all of their money, let them pay the consequences. They’ll learn first hand how to budget their money so they have some when they need it.
If you always bail them out or buy them what they were saving up for, they’ll start to get the impression that help will always be around the corner and will use that as a crutch. That could be a lifetime trend. If you decide to bail them out, another idea is to “loan” them then money and charge them interest on cash advances, like a bank would.
10. When saving for a specific purchase, have your kids start small and work their way up. For example, if you child wants a $5 toy, $50 video game and a $250 bicycle, have them start saving for the $5 toy first. This will ease them into the mindset of saving.
Your child will learn that sometimes it takes a little while to save up for what they want. Your kid will see that, in the end, saving is a worthwhile thing to do. This will also teach them how to prioritize what they want to save up for.
Keep in mind these 10 tips for how to teach kids about money and your children should be far ahead of the curve when it’s time for them to go out into the world and keep their own budget.