One of the greatest responsibilities we have as parents is to teach our children how to go out into the world and become responsible adults. We teach them how to clean up after themselves, how to do their own laundry and generally how to be good humans.
But we often overlook the importance of teaching kids what they need to know about fiscal responsibility. Considering that it's not often taught in schools, it's up to parents to educate their kids about smart financial habits, and it is never too early.
Not sure where to start? Here are some things you can do to help your kids learn about money.
1. Be open about the concept of money
The best way to help your child understand the concept of money is to be open about it. Very often parents treat finances and any talk of money as a “dirty little secret.” But children who are shielded from the real world are more likely to join the growing number of young adults who are financially illiterate.
We have to remember that kids have an innate curiosity. They want to know about the world around them. Kids tend to be curious about the things that directly affect them, like new clothes or a new toy. But that curiosity can spill over into questions regarding larger concepts like housing or food. While it’s important to be clear that it is not their responsibility, sharing this information with them early is fundamental to the development of money management skills down the road.
2. Have your children do chores for money
Allowing kids to earn money by doing chores can teach the value of a dollar. They begin to understand that a particular action leads to a desired result. Having them work for money also teaches them self-sufficiency, resourcefulness and good work ethics at an early age.
3. Explain the basics of credit and debit cards
The world as we know it is quickly moving toward a cashless economy. More often than not we use credit or debit cards to pay for our everyday purchases. What we have to remember is that swiping a piece of plastic can be a difficult concept for young children to grasp. It is important to explain the limits of buying power and the basic principles behind credit and debit cards.
4. Talk to them about patience and saving
The need for instant gratification is part and parcel of being human. We all want something and we want it now. Unfortunately, it is behaviors like this that fuel the buy now, pay later mentality. Teaching your kids about delayed gratification will allow them to avoid a life mired in credit card debt. Kids should learn early on that if they want something, they need to save and wait to buy it.
5. Allow them to make their own spending choices
Giving kids the freedom to make their own spending choices is a great way to teach them that money is a finite resource. It also encourages them to think through their purchases. As they begin to understand that money used to buy one item will not be available to purchase another, they will learn to make wiser choices.
6. Define the difference between needs and wants
Knowing how to distinguish between a need and a want is a crucial skill for kids. Once they understand the difference between what they need for survival and what they can do without, they are guaranteed to make better decisions. Understanding this early on will have a profound effect on their financial health down the line.
Teaching your kids about money does not have to be a daunting task. The lessons are easy, and half the battle is modeling good financial health yourself. The important thing to remember is that by starting early, you set the stage for smart habits that will last a lifetime.