Financial literacy is an important skill, and it’s not something all kids learn in school. Unfortunately, money is also a taboo topic in many families as well. This often means that young adults are going out into the world without a strong foundation in how to manage their money. The financial mistakes in these early years bring bad credit scores that can be hard to shake. Parents should take an active role to teach children about personal finances. It’s best to start young, but there’s always time to pick up the slack with the following ideas.
Dinner-Table Discussions to Teach Children Personal Finances
Don’t shy away from talking about money at the dinner table. Consider talking about the family budget or setting some financial goals. For example, you might explain to the kids that you would like to go on a vacation and need to save $100 a month to do that. To fit that in the budget, it might mean less fun nights out. Talk about how this small sacrifice will make for a memorable experience later on, so it’s worth it. Get the family excited about saving. With older children, you might also be able to incorporate some current financial news topics into the conversation as well.
Modeling Good Behavior
Kids pay more attention to what you do than to what you say. If you’re talking the talk about saving money and being responsible about money, you have to actively practice what you preach. Let your kids see you paying the monthly bills with personal checks and show them how much things cost. This way, they won’t be so surprised to get that first electricity bill when they move out.
Allowance
Giving your child an allowance allows him or her to put any financial knowledge to good use. Many experts suggest giving one dollar per year of age each week as a basic rate – a seven-year-old gets seven dollars per week. Offer ways to earn extra money by doing extra chores as well. Encourage your children to save their money in a piggy bank or regular savings account at the bank. A good way to do this is to match any money that goes into the savings account. Many families try to foster a sense of compassion by having children donate some of their allowance to a favorite charity.
Practice
Aside from the real-life practice kids get when they earn an allowance and determine how to spend or save it, kids can also put their skills to practice in games. Young kids typically like to “play store” and you can set something up with toys and fake money. It’s good to practice math skills as well. Board games like Monopoly or apps about building pretend businesses help older children learn how to balance spending and earning to see profits grow.
Dealing with Wants
Perhaps the most important personal finance lesson to teach your children is about not buying things that they can’t afford. Everyone wants certain things at times, but it’s rarely smart to buy a “want” on credit. Show your child some calculations that show the true cost of purchasing on credit. As a family, refuse to buy things if you don’t have the money to make the purchase. However, remember that your child’s money is her money to do with as she pleases. Bite your tongue when she chooses to “waste” her money on something you feel is useless. Finding that you’ve spend money on something that wasn’t worth it is an important lesson to learn, and it’s best done in the safety of a loving home when growing up.
Children have a long life ahead of them. If you can teach children about personal finances and set them on the right path for success they'll be ready for the real world. When you start young, being financially responsible becomes second nature.