Educating your children about finances at an early age is a great way to help them develop good saving habits and a healthy relationship with money. As a result, they’ll be better prepared to handle whatever financial situations that life
may throw at them later.
In this post, we’ll cover some of the basics of when and what to teach your
children. Before you begin, you’ll need to:
Get comfortable with talking about money
Many parents are hesitant to discuss money with their children. They may feel they don’t have a strong understanding of financial concepts themselves or there may be is some discomfort around their own financial situation. That’s okay. This is a great opportunity for parents to learn along with their children. In
addition, educating children about money can help keep them from developing bad spending habits.
If you’re ready to talk to your children about finances, great! Let’s get started.
It’s never too early
The earlier you start teaching your children about money, the better. Basically,
you can start the conversation around money as soon as they can count, often in preschool or kindergarten. Even at that early age, they can understand some of basic concepts like saving and spending.
Here are some of the ideas you’ll want to share with them:
Explain needs v. wants
Understanding this difference is key because it introduces the idea of prioritizing spending. Housing, food and clothing are needs. A VR headset is a want. One way to help kids understand this difference is by looking at some of the items in your home and determining whether they represent a “need” or a “want.”
Share the benefits of delayed gratification
We live in an age where FOMO (fear of missing out) is a constant presence and
instant gratification seems to be everyone’s default setting. Help your kids
understand how taking the time to earn and save money to purchase a “want” can make the purchase more satisfying.
Also, let them know that comparing their lives to their friends’ or what they see on social media is a bad idea because every family’s financial resources are
unique.
Show them that money is earned, not given
Having your kids work for their money will help them understand money’s role in
society, i.e., that it is given in exchange for work performed, not handed out
for free. Your children can earn their money by performing chores around the
house. While this payment is traditionally referred to as an “allowance” many
are now calling it a “commission” to better convey that the money was earned.
Give them a place to keep their savings
For preschool and early elementary school-aged children, a piggy bank or clear jar works great. A clear jar will let them watch their money grow as they add to
it. For children aged eight and older, a savings account will introduce them to
banks, monthly statements, and more.
Help them set a budget
Have them write down items they’d like to buy, as well as their weekly earnings.
That way, they can see how much of their earnings they’ll need to set aside,
and for how long, before they can buy the items on their list. Listing out
multiple items (or even goals like “Having money to buy souvenirs on our family
vacation”) will help them prioritize their objectives.
Encourage them to save for college early
The fact is, people with post-high school education tend to earn more than those without. Unfortunately, tuition costs are increasing every year. It’s a
reasonable expectation that the student will cover a portion of their post-high
school education, so it’s best to start planning early. Part-time after school
and summer jobs can help a lot. If the student is too young to for those,
additional chores and tasks at home can help get their college savings started.
Chances are, they’ll also be saving for things like a car, so encourage them to keep their college savings in a dedicated account.
Keep the conversation going
Teaching kids about money is not a one-time proposition. It’s important to keep the conversation going and to regularly reinforce financial concepts as your
children grow older and can understand more advanced concepts (like interest).
Key takeaways
- Explain concepts like saving, budgets and goals
- Discuss benefits of delayed gratification
- Let children earn money for household chores
- Give them a place to keep their savings
- Make the conversation an ongoing one