Have you ever wondered when is it the right time to teach your kids about money and how to manage it?
Well, guess what? Even toddlers can understand the fundamentals of handling money when taught about it in an age-appropriate way. In fact, encouraging financial awareness in children at an early age will help them develop an appreciation for proper money managementand its benefits. Since before I had kids, I knew I wanted to implement some kind of allowance based on completing chores/homework. We have just started this type of thing with Zoey and I LOVE seeing the responsibility and work ethic it is inspiring in her.
So if you want to raise financially responsible children, NOW is the perfect time to begin! These ten critical lessons about money management should help you get started.
1. Working with a budget
You can’t teach your kids how to manage money without giving them some. Whether they get an allowance regularly or in exchange for basic chores expected of them is up to you.
Give them the freedom to decide how to use their money, but never give in when they come begging you for more after blowing all of it. This way, they learn the consequences of their actions – they get a firsthand experience of what happens when they overspend.
This is something we have really been wanting to teach Zoey. She tends to think our bank cards are a never ending supply of spending money, with no consequences when you overspend. We got her her own card with Busy Kid, she can use the app to track how much she has left and to earn more money each day. It is helping her visually understand what it means to budget.
2. Saving and sharing
Giving your kids the freedom to budget and spend their money as they see fit can be a good thing but don’t forget to remind them about the value of saving and sharing. Develop these habits gradually by giving them separate piggy banks for savings and charity. These small steps can go a long way.
3. Keeping track of finances
Ask your kids to make a budget sheet where they can list the things they need and want versus what they actually spent their money on. This exercise can open your kids’ eyes to how much easier it is to manage money when you track your expenses.
When they see their spending habits on paper, they might be more motivated to cut back on unnecessary purchases to afford or achieve more important financial goals.
4. Needs vs. wants
Kids can want stuff one minute and not want it the next. Every time your kids ask for something, have them contemplate whether it’s a need or merely a want. If they think it’s a need, have them justify their answer. How will they feel about it after a week? A month? A year? Can they promise you they won’t just leave it in a corner to gather dust after some time?
5. Comparison-shopping
Kids in elementary school can grasp the concept of comparison shopping. When you go to the grocery store, take them with you and show them how you compare brands and prices to get more out of your budget. But it doesn’t end there — you also have to urge them to do the same when it comes to their personal purchases.
6. Credit and what it entails
When your kids want to buy something they can’t afford with their allowance, encourage them to save up for it. If they insist, tell they can borrow the money from you, but they have to pay it back within a specific time frame – with interest. Though you don’t want your children to get used to borrowing money, agreeing to this setup once in a while will help them understand credit and how to handle it responsibly.
7. Setting financial goals
Goal setting is an essential aspect of financial management. Planning financial goals with your children will give them something to strive for. It will challenge and motivate them to manage their allowances better or find ways to earn more money to achieve their goals faster.
8. Delayed gratification
Delayed gratification is a fundamental lesson in financial management. Children have to realize that waiting can be beneficial especially when dealing with money. Just because they have cash on hand does not mean they have to spend it immediately. They can save a part of their daily allowance if it’s big enough to buy something they really want or put away some of it in a bank to earn interest.
9. Making their own money
Kids have to understand that you cannot whip “dough” out of thin air. Even at an early age, they have to learn to appreciate the effort and work that comes with earning money. While you may be tempted to just provide your kids with almost everything, it’s wiser to push them to work for some of it.
10. Investing
It may be quite difficult to educate children about investments at such a young age, but you can instill in them the importance of investing for the future by setting an example. Open your kids’ eyes to the idea of growing their money over time; that the goal of investing is not making a quick buck — it’s putting your money in something that will potentially gain more significant returns over the years.
We have been working hard to teach Zoey these lessons at home, and I can really see it starting to click. How do you teach your kids about money management?
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