TEACHING KIDS FINANCIAL
One of the many important lessons to teach children is how money works and how to manage it responsibly. You may not realize it, but many of your spending and saving habits most likely come from what you were taught or observed of your own family. A study by TrueCredit.com found that one in five parents of kids between the ages of 4 and 18 have never discussed the basics of money.* Teaching your children financial responsibility will lay the groundwork for a successful financial future.
Cover the basics
It’s never too early to teach children about money; start while they’re young. You can make it fun by using play money to understand the value of various coins and bills. Once they have a basic understanding, take it a step further and act out different transactions. If they want a candy bar that’s $2 and they have a $5 bill, have them figure out how much they should receive in change. Not only does this create a foundation for money management, but it will help them develop basic math skills.
Teach saving vs. spending
As children earn money when they’re young, whether through an allowance or special occasions, teach them the importance of saving. Create your own bank at home and have them split their earnings into containers labeled “Spend” and “Save.” You can take it a step further and designate a third container: “Share” – these funds can be used to donate to a cause of their choice. Together, you can create a plan for them to split a percentage of their earnings into each container. For example, they can contribute 50% to “Save,” 40% to “Spend,” and 10% to “Share.” If your child has been eyeing something to purchase, such as a toy, have them set a goal to save-up for it. Over time, they’ll watch their money grow and will feel accomplished when they have enough to make their own purchase.
As they grow, take them to a financial institution to open their first account; look for accounts without fees, so they don’t need to meet certain minimum balance requirements in the beginning. From there, you can deposit the funds they’ve saved at home. When the time comes, they can also look to open a checking account. That way, they can continue the same process of splitting their earnings amongst these accounts.
No matter their age, include children in purchasing decisions, such as grocery shopping. Ask them to help you organize coupons ahead of time and find the applicable products when in the store. You can also compare prices of similar products from different brands. By teaching them the importance of looking for bargains, they will think twice before paying full-price for an item in the future.
Show them the importance of staying organized with their finances by taking them along when you need to return an item. That way, they’ll see the benefit of keeping a receipt for a period of time after a purchase.
Don’t be afraid to discuss money on a regular basis. Start by going over your household budget - without mentioning specific numbers. Explain the costs that factor into your monthly budget to highlight the importance of spending within your means (i.e. house and car payments, utility bills, insurance, etc.). This mindset will be valuable when they begin taking on expenses of their own. With exposure to these discussions, there will be less mystery surrounding the topic and they will be more comfortable making choices for themselves.
Tip: Use our Budget Planning Worksheet as a guideline when outlining your monthly budget.
Lead by example
The key to successfully teaching your kids financial responsibility is to be a good model of money management. If a child grows up watching their parents struggle financially due to overspending and poor budgeting habits, it could be difficult to inherently practice good money management skills. By witnessing these practices early on, they can avoid making major mistakes in the future. Leading by example will reinforce the skills you’re teaching them, creating habits that will stick with them forever.
In 2014, a study published in Management Science found that one-time financial instruction wears off quickly.** Your child’s financial education should never be limited to a single lesson; continue to teach as they grow. When opportunities arise to create a learning experience, take advantage of it. In the end, you’re helping them lay the groundwork for a successful financial future.