Teaching your kids how to respect money and work within a budget from an early age can be a powerful way to set them up for common challenges later in life. After all, while money might not be the root of all happiness, it’s an important factor in any day-to-day life. Even when they’re young, kids are ready to embrace the basic idea of money, and as they start to get older, you can work more on giving them the habits they need to avoid debt and maintain a regular income.
While the lessons that you teach your children will depend on several factors, including how old they are, it’s important to make sure that you at least consider how you can give your youngsters a valuable financial education. The following tips will help you to share your wisdom in the best possible way.
1. Include Your Kids in Financial Discussions
While you shouldn’t necessarily be talking to your five-year-old son about stock options and investments, you can get your kids involved in the conversation when you’re talking about budgeting or everyday spending choices. For instance, when you decide to make burgers at home rather than going to a fast-food restaurant, tell them why that decision was better for the budget and how it means you’ll be able to afford to give them presents on their birthday and pay for better things later.
The appropriate level of inclusion for your kids when it comes to financial discussions is a decision that you’ll need to make as a family. While some people are happy to include their children in their budgeting decisions, others prefer to keep the introduction to cash as basic as possible to begin with.
2. Consider Using Pocket Money as a Teaching Tool
Not all parents believe in giving their children pocket money. Some feel that their children shouldn’t have money until they can earn it for themselves. However, if you do decide to give your children small amounts of money to spend each month, this could be a great way to teach them about the importance of budgeting.
Instead of simply paying for your child to go to the movies with friends or giving them the cash, they need for a new toy, give them their pocket money and let them know that they’re not going to get anything else for the rest of the month. This will teach your youngsters how to use cash with caution. It can also be a great way to teach them the value of hard work, particularly if you link the pocket money to chores like cleaning their room or doing the dishes.
3. Make Budgeting a Natural Part of Life
Introducing your children to the concept of saving and budgeting doesn’t have to be a complex thing. Sometimes, it can be as simple as giving your child different jars that they can sort their money into each month. For instance, they could have one jar for saving, and one jar for spending.
As your child starts to get a little older, then you could add a new jar to the mix for investing and start to teach them about how they can place their money into investments to get compound interest on savings. Of course, this isn’t something that you want to get into with young children.
4. Build on the Basics as Kids Get Older
As your children start to get older, you can consider bringing them into your regular household budget planning conversations and other financial decisions. When they’re still relatively young, but ready to grasp a few more complicated ideas, you can talk to them about things like bank accounts, compound interest, and more. You might even find it helpful to go through the household budget with your teenager and show them exactly how much you spend on the car, the rent, and other essential expenses each month.
Sometimes, simply introducing your child to your financial world will be enough to help them better understand how quickly an income can be spent.
Teaching Your Kids Financial Skills
Teaching your children important financial skills as early as possible can help to save them a lot of headaches later in life. Start by addressing the basics, then add on new lessons as your child gets older. Remember, you should always be on the lookout for teachable moments too. For instance, when your phone bill comes, go through it with them, and talk to them about the difference between buying something on a credit card, or on a debit card.
The more your kids learn when they’re still young, the easier it will be for them to make informed decisions later in life.