How do we teach kids the value of a dollar? This is an age-old question parents have been asking for years. If we don't start teaching our children at a young age though that money is something that needs to be used responsibly, they will be set up for failure as an adult. These tips are great to get your kids to start learning about good financial habits in a way that they can understand.
Just start the conversation.
Like anything else, talking about money in context is how kids learn. Long before they know what most words mean, they use them. You might hear your younger child parrot you by saying “a waste of money.” Take those opportunities and make them teachable moments. When they get older, they then might ask about the budget for something because you took the time to teach about it at an early stage. They should be a part of your family’s financial decisions.
Give them an allowance.
What better way to learn the value of money than by earning it? Create a set of chores and weekly payment schedule, and teach your kids that when one week’s money has been spent, they’ll have to work hard and wait for their next allowance. By earning the money they spend, children learn not only how hard work can lead to fun, but also how to stick to a budget for future purchases.
As your children get older, and their chores grow in number and difficulty, increase their allowance even if only by a small amount. Act as their first boss would. Instilling a “work equals reward” mentality will serve them well in the short and long run. They will work harder to get more of what they want.
Teach them about savings.
There are many benefits of smart savings habits, such as self-discipline, learning to distinguish between wants and needs, and being able to afford unexpected expenses. Encourage your child to set a portion of their earnings aside each week and keep a running total in their savings book. Watch together as a little money here and there can add up quickly.
As your child’s savings increase, consider interest-bearing accounts as a way to make this money grow further. Low-risk investments can teach the basics of saving for the future without jeopardizing all the hard work that brought your child to this point. Investing is an essential skill in growing savings, and the earlier you begin, the better.
Act as their first lender.
Your child will eventually want something they can’t afford right away such as a cell phone, computer, concert tickets, or toy. When that happens, take the opportunity to teach your child about borrowing and paying back the money. Lend your child the amount they need and charge a small amount of interest. Next, set a date by which the loan must be repaid. This will teach them how to use borrowing strategically.
Explain the quality of items.
Why are brand name items sometimes more expensive? Does that mean they are better? These are questions you should talk about with your kids before they choose to make a purchase. Say the backpack they want to buy for the school year is cheaply made, but they want to buy because it's the least expensive. Investing in a higher quality product though will save them money in the long run. That way they can use the money on more fun things, like movie tickets. Certain things are meant to last and shouldn't be replaced until they are no longer functional. Buying a cheap bag that will only last half the school year ends up being a waste.
Get them a credit card.
If you are the parent of a teen, it might be time to discuss the convenience and benefits of using a credit card responsibly. Help your child pick out a card and monitor card usage. Teach them the importance of paying off the card each month so that borrowed money doesn’t pile up. There are many entry-level type credit cards available for teens that offer low-interest rates and no annual fees. This is a safe and easy way for your teen to establish good habits and credit. Credit will only help them later on when they go to get their first apartment, car, or loan.
Set up new financial challenges.
As your child’s financial knowledge and experience grow, have them set increasingly challenging goals for themselves. Celebrate their successes and support them in failures. This can be setting up a goal to save a certain amount by the end of the year, or build up their credit score by a set number of points. This will go a long way toward reinforcing the benefits of responsible money management and meeting personal objectives. Sometimes the most important lessons we learn come from our own missteps. Teach your child to accept responsibility when they spend too quickly, borrow too much, or save too little, and support them by helping develop a plan to put things right again.
Set an example.
This is one of the most important ways you can help your children save money. You should set a good example of saving money yourself and then allow your child to see you putting good savings practices into action. Talk to your children in age-appropriate ways about how you save for big-ticket items and the things you do to keep yourself encouraged along the way.
Teach them about identity theft.
Unfortunately, identity theft isn’t going away anytime soon, so it’s essential that your kids know which steps to take to protect themselves and their finances. Caution them on the potential dangers of online shopping and loaning cards to friends, discuss tips for setting strong passwords, and remind them to check their accounts regularly and log out of mobile banking when not in use.
The more financially savvy your kids are, the more confidence they’ll have when it’s time to navigate the world as an adult. No matter which step of the journey they’re on or whichever financial goals or obstacles arise, make sure you offer your support and aid so they can learn from their mistakes. This will help set them up for the future, where money doesn’t just grow on trees.