If you don’t teach your kids, someone else will — words of wisdom that apply to table manners, cartwheels, and just about everything in between. This also applies to how we teach and talk to our kids about money.
Teaching your kids about money is a great way for them to get some valuable life lessons directly from you. And you may even learn something new as part of the process too. So, here’s a little homework to give you a head start on your kids’ financial curriculum: 7 tips for teaching your kids about money.
1. Teach the Value of Earning Income
One of the best ways to teach your kids about the value of money is to allow them to earn it themselves. If you have the means, give your kids chores around the house and let them earn an allowance for their efforts. Or, if they’re old enough, help them find ways to earn money by themselves. This can be through a lawn mowing service, pet or child babysitting or even the classic lemonade stand. Understanding that earning money takes time and hard work to achieve can help them put money in the proper perspective.
2. Teach the Difference between Needs and Wants
When it comes to spending your own money, it’s always a good idea to budget for all your needs (food, house payment, rent, utilities, etc.) before spending money on things you want (the latest electronics, designer clothes, etc.). Teaching your children the difference between needs and wants is a great way to help them understand the basics of a budget. You can explain to them that needs are things we must have to survive and be comfortable, and money should always be spent on those first. Then, you can spend whatever money you have left on the things you want to buy or save.
3. Teach the Value of Savings
Impatience is one of the tried and true hallmarks of being a kid. When most kids decide that they want something, they think they should get it right now. But money and impatience don’t always play well together. We often have to save for the big ticket items we all want, like computers, laptops, bikes and more. So instead of indulging your child’s every want right away, teach them to save up for that toy, bike, video game, or computer. Help them see that once the necessities are paid for, they can save up for the fun stuff with what’s leftover.
4. Teach the Secrets of Savings
Once you’ve gone over the basics of why saving money is important, you can move to the next level of teaching them how to save. If there’s something everyone in the family wants – like a vacation, movie, video game or other fun experience – you can tell your kids that you’re all going to work together to save for it. You can place a jar somewhere that everyone can see it and have everyone deposit money into the jar as they can. If your kids are older, you can help them open a bank account and show them that each month, their money can earn more money. Teach your kids the concept of earning interest at an early age. It will leave a strong impression and help motivate them to spend less and save more. While you’re at it, take the opportunity to teach principles of compounding interest and the time value of money to give your kids a true appreciation for the earning capacity of their money.
5. Teach the Concept of Borrowing Money
Have a heart to heart with your kids about the benefits (and dangers) of borrowing money. Talk about how borrowing money responsibly will eventually help your kids build credit, buy a car, and purchase a home—all great financial pursuits. In relation to your conversations about compounding interest, help them understand that borrowing money comes at a price. Perhaps most importantly, teach them the value of staying on top of their debts and making payments on time every time. Discuss some of the consequences of falling behind with their bills. You could even use their own chores as a good visual and metaphorical example. (What happens when you go too long without cleaning your room or cutting the grass?) Staying on top of finances is always easier than trying to play catchup.
6. Teach Everyday Examples of Good Financial Habits
Pay attention to how many times you interact with your money during a given day. Use these interactions as teaching opportunities for your kids. At the grocery store, for example, show your kids the difference in price between brands. Show them how much you spend on a typical trip. Teach them about using a credit card to pay for a week’s worth of food. And, explain that the money you earn and deposit in your account will eventually pay for everything you buy. Your kids already pay attention to these simple financial interactions. If you take the time to teach valuable financial lessons, you can prevent your kids from making assumptions and taking money (and groceries) for granted.
7. Teach and Learn Together
As you teach your kids about money, you may be surprised about how much you learn about your finances in the process. Being the teacher forces you to practice what you preach. It also helps you better understand difficult financial concepts when you put them in simpler terms and say them out loud. Learning about finances together also means asking your kids if they have questions. They may eventually ask you something you don’t know, forcing you to do a little more research and helping you save and spend smarter.
Make financial learning fun for you and your kids. The lessons you teach (and learn) will pay off for you and your family.