Your kids aren’t going to know how to handle their personal finances when they blow out the candles on their 18th birthday cake. Financial literacy isn’t an innate trait. It needs to be taught. And while you can be confident that their teachers will cover financial topics throughout their school years, you will have even more influence on your kids’ understanding of money.
So, how can you teach them about finances?
Table of Contents
Give Allowances!
Let your kid practice making financial choices by giving them an allowance. With an allowance, they can learn how to make independent purchases without having to beg you to do it for them. They can learn how to save up their money for larger items that they want. And they can learn that spending everything they have on impulse feels great at the moment but feels terrible later when they realize that they have no more money left.
Allowance amounts should be based on your kids’ ages (and, of course, your budget). Find out what the average allowance amounts are to get an idea about how much you should give out.
Teaching Budgeting Skills
Discuss the importance of teaching kids how to budget their allowance effectively. Teach them about allocating funds for different purposes like saving, spending, and giving.
Encouraging Saving Habits
Explore strategies for helping your kids develop a habit of saving a portion of their allowance. Emphasize the benefits of saving for future goals and unexpected expenses.
Setting Financial Goals
Explain the concept of setting financial goals with your children. Encourage them to identify short-term and long-term goals and plan their allowance allocation accordingly.
Learning the Value of Money
Share insights on how to help kids understand the value of money by discussing the effort required to earn it. This can cultivate a sense of responsibility in their spending decisions.
Introducing Chores and Earnings
Discuss the idea of tying allowance to chores or tasks, helping children associate earning money with completing responsibilities.
Delayed Gratification:
Touch on the concept of delayed gratification, teaching kids that waiting and saving for a desired item can be more satisfying than impulsive spending.
Comparing Prices and Bargain Hunting
Offer tips on teaching kids to compare prices, find deals, and make informed purchasing choices, empowering them to be savvy shoppers.
Managing Impulse Purchases
Provide advice on how to guide kids in making thoughtful decisions and resisting the urge to spend impulsively on fleeting desires.
Giving Back through Giving
Explain the idea of allocating a portion of their allowance for charitable contributions or acts of kindness, fostering a sense of empathy and generosity.
Tracking and Recording Expenses
Suggest methods for kids to track their spending, such as using a simple notebook or a budgeting app, to help them become more aware of their financial habits. Discussing Wants vs. Needs: Initiate conversations about distinguishing between wants and needs, helping children prioritize essential expenses over discretionary purchases.
Use Games!
You can teach your kids about finances through play! When they’re under the age of 5, you can play “store” or “restaurant” and have them pretend to buy or sell the food. When they’re a little older, you can get them to play board games that encourage them to handle fake money and practice making big spending decisions.
Games like PayDay, Monopoly Jr., and The Game of Life are all good picks for your family game night. Or if they like playing video games, there are great video games that teach money lessons to kids. For instance, the game Animal Crossing: New Horizons can teach them about selling items, repaying loans, and even investing in “stocks.”
When they’re playing, they won’t even realize that they’re learning valuable lessons.
Lead by Example!
The most important way to teach your kids about how to properly manage their finances is to do it yourself. Showing them is more effective than telling them. Kids will notice whether you are responsible with your money, even when they are quite young. Research shows that kids absorb financial lessons early in childhood. So, you’ll want to be careful that you’re not giving them the wrong lessons!
For instance, one way that you can show your kids that you’re responsible with money is to build an emergency fund. This will show them that it’s important to save money for surprise expenses that are outside of the norm, like a plumbing problem or a broken appliance. When something goes wrong, your kids will notice that you don’t panic about the payment. You’re ready to cover the costs right away.
Without an emergency fund, you might not have an easy way to cover urgent expenses that fall into your lap. This doesn’t mean that you have to panic. You can turn to a backup plan, like applying for a personal loan online. You can go to the website CreditFresh to see whether you meet all of the eligibility requirements for a personal loan.
If you do, you can submit an application — you just might get approved. Then you could use the online loan to handle your emergency expense quickly and cover repayments later.
All in all, you want your kid to take away the lesson that it’s crucial to prepare for financial emergencies and to respond to them with a cool head. There’s no need to panic. Don’t wait until your kids are older to teach them about money. You need to teach them financial lessons as soon as possible. Start now!
