Children can learn about finances in many different ways. You can share your experiences of your past financial maneuvers. You can teach them lessons about how important it is to save and make smart financial moves. However at the end of the day involvement is the best teacher.
Below are some techniques you can use to develop an early interest in finances and teach them some of the essential basic principles. By doing so, you may be laying the foundation for skills that they can use for the rest of their lives and make an enormous impact on their long-term development.
1. Start early
At an early age children often think in very concrete terms. By giving them a simple piggy bank around age three or four you can give them a concrete place where they can study their money and watch it grow. Piggy banks come in many shapes and sizes, but giving them a clear one will allow them to actually watch their money accumulate. Don’t hesitate to allow them to spend the money from the bank at different levels. That way they can begin to learn that a little money will only buy something small, whereas a larger amount of money can potentially buy something special. In many cases playing games can also enhance their desire to save. Also be sure to teach them the difference between a need and a want.
2. Make money a habit
In order to lay a strong foundation, consider making savings mandatory. Whether their money comes from an allowance or a neighborhood lemonade stand, help them choose a percentage to always save, 10% for example. If you do this early on, there’s a good chance the habit will stick. If however you wait, there’s a good chance your kids will not save on their own. Saving is a learned skill, not an instinct.
3. Step up to a savings account
As kids grow older a savings account can be a good way to show kids how their money can build. It can also introduce them to the concepts of compound interest. Begin by having your financial advisor run a future value calculation to see how their account can grow from interest. Also, make sure you include them on your trips to the bank or show them how to log onto their account online. Even though you may have the bulk of your money direct deposited, by making regular trips to the bank your children may start to see you as an example of financial responsibility. In addition, doing something Mom and Dad do can make them feel more grownup and take a more responsible interest in their money. Also, regardless of the chicken scratch, let them fill out their own deposit slips.
4. Promote goal setting
You probably have a good idea about the things your kids want, but by making them write down their wishes and establishing a plan to achieve those goals, you may be teaching them some valuable skills about maintaining focus on the big picture. You might also want to contribute a matching amount whenever they reach certain milestones. In many cases, an offer like that may feel just as good to a kid as it does to you. In addition, children can have short attention spans and can lose sight of their ultimate goals if they aren’t taking substantial strides to reach them.
5. Consider giving allowances
Whether it’s a small amount of money or a large amount of money, allowances give kids real, hands-on experience that can rarely be achieved elsewhere. Some parents view allowances as pointless and simply give their kids money whenever they need it, however this can potentially develop a sense of entitlement. Encourage them to save at least a part of their allowance, but don’t withhold their allowance as punishment. Allow them to show initiative by asking for a raise at times or doing extra work around the house to earn a couple extra dollars. At the same time, do not give them too much, rather slowly increase their budget so that they have to plan and save.
6. Teach them how to budget
Encourage your children to create a log of their weekly expenditures and how much each item costs. Next, log their weekly allowances (income). If they are spending more than they are earning, they need to learn to prioritize their wants. To teach them the concept of prioritizing, start young and allow them to pick out one and only one treat in the entire grocery store. Don’t let them choose more than one item so that in their own mind they will have to learn what things are important to them. Then give them the money to make the purchase. They should soon learn that spending involves choices.
7. Promote working overtime
In addition to their allowance, encourage them to look for additional ways to earn a little extra money. Suggest they look for odd jobs around the house or neighborhood, or propose that they solicit friends or family members to do simple tasks for pay. Pulling weeds, raking leaves, or looking after a pet are a few examples of jobs that are suitable for most kids. In addition many people would love to have others do their household chores, and it presents a great opportunity for your children to learn a very valuable lesson.
8. Give them a head start
By educating your children on the basics of finances, you could be laying the groundwork for lifelong skills. The earlier they master the basics, the sooner they can move on to more advanced financial topics, such as investing. Chances are that after they learn these and other life skills, your son or daughter might actually look at you and say “thanks.”
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