One of the most important lessons parents can pass along to their children is the power of money and how it works in the real world. Proper financial management skills are a must as an adult, but it is common for parents to shy away from talking about finances openly and honestly with their kids.
Avoiding the topic leaves children at a disadvantage not only when they come of age – but it also results in challenges when navigating financial decisions throughout adulthood. Whether you have toddlers or teens, or children in between, here are the key lessons to teach your kids about money.
1. Teach Children About the Importance of Saving Money
No matter the age of a child, marketing tactics from game companies to toy manufacturers are heaved at kids all day, every day. This bombardment can make it difficult for parents and children alike to steer clear of impulse buys.
Teaching kids constant lessons about the importance of saving can help reduce the urge to give into instant gratification. A theme that often works well here is this – what is worth having is worth saving up to buy.
The idea of saving doesn’t come naturally to kids, but parents can instill this lesson early on in their lives. That could start with something as simple as a piggybank or opening a savings account at a bank a credit union. Birthday or holiday money can be deposited, and children can see how that adds up over time.
Parents can offer motivation to save by adding a reward to the process. As soon as the savings vehicle reaches a certain level, the toy or game or other purchase the child wants can be purchased. These are lifelong lessons that stick with children well throughout their adult years.
2. Teach Kids the Relation Between Money to Hard Work
A challenging aspect of teaching children about money is making the connection between income and work.
Children often see adults using cards to pay for things at the store, or witness packages showing up on the doorstep after an online shopping spree. While they may understand that these purchases are not free, it can be hard to connect the dots between how the money to buy said items got to their parents in the first place.
The old adage, money doesn’t grow on trees, can be a place to start the conversation, but most kids need more explanation than that.
Parents may encourage their children to generate an income from work they do, be it chores around the house for an allowance or opening a summertime lemonade stand in the neighborhood. These simple activities help children put together the reality that having money requires work in some form or another.
3. Teach Kids the Power and Dangers of Debt and Credit
For young adults, managing the confusing world of debt and credit is often a difficult task without prior knowledge of how it works. Parents can offer sound financial guidance by teaching their children about credit early on in life. These lessons should revolve around two critical aspects: purchasing something on credit is not the same as using cash, and debt comes at a cost.
One way to educate kids on credit and debt is to lead by example. Being a responsible consumer by using credit cards and financing like loans minimally can help children understand how to follow this path in their adult lives.
Parents may also be able to provide valuable insight into credit limits and the cost of charging purchases by adding a child to a credit card account as an authorized user. Share the bill with them each month and explain how interest on unpaid debt adds up.
A debit card for kids can provide children with additional ownership and is also a great way to help them learn some key aspects of this financial lesson!
It is essential to show kids that credit and debt are not evil on their own, but when they are used irresponsibly, they can lead to an expensive habit that is hard to break.
4. Teach Children the Basics of Money Management
Children also need to learn about the basics of money management as soon as they are able to retain the information. Fundamental lessons about budgeting can be incredibly powerful for a young mind.
Parents can use many different tools to get the job done, but it is often easiest to break down budgeting in terms of income or money received, expenses, and goals.
This discussion can start with asking kids what they want from their money, and then setting realistic goals on how to set aside funds for that specific goal over time. However, parents need to follow up with examples of expenses that may take away from money earned or received so that children understand how budgeting works in real life.
Most children don’t have bills to pay each month but establishing a saving requirement can help in this regard. Help the child create a budget for their money and encourage or work with them to manage that budget over time.
5. Teach Teens Financial Lessons for the Future
Finally, parents need to set the stage for what’s to come in life for children once they reach adulthood. Having the discussions mentioned above about saving, earning an income, using debt and credit wisely, and budgeting all come together to form the foundation of personal financial wellness. But it doesn’t stop there.
Particularly crucial for teens, educating children about the cost of earning a degree in college, purchasing a home, and saving for retirement and investing are powerful lessons they can lean on for the remainder of their lives.
Again, parents can and should lead by example with more complex money topics, taking the time to show their children what it takes to be financially prepared for the long term.
