Kids and Money – A Guide for Teaching Financial Literacy
Financial literacy is an incredibly important skill for children to learn, as it can equip them with the knowledge and skills for a lifetime of financial stability and success. However, teaching your kids about essential financial concepts such as budgeting, saving and investing can be challenging and intimidating for both parents and children. Here is a simple guide to teaching your kids financial literacy.
Define Financial and Monetary Terms
Before jumping into any concrete lessons or discussions, you’ll want to first define some financial and monetary terms that your children may be unfamiliar with. Talk with your kids about the basics and answer any questions they might have. Here are some terms to cover:
Money: What is it, what does it look like, what is it used for
Savings: Why it’s important to save money, how to set up a savings account
Investing: What it is and how people make money from it
Loans and interest: What they are and why they’re important
Credit: What it is and why it’s important to build credit
Allowance
One common approach to teaching children about money is by giving them an allowance. This way, children can begin to learn responsibility and money management. Here are a few tips for allocating an allowance:
Decide on a reasonable and age-appropriate amount.
Set clear expectations and ask your children to follow a budget.
Require your children to save a small portion of their allowance.
Establish a savings goal with your children, like a desired toy or game, which you can use to illustrate the concept of delayed gratification.
Discuss Spending
Rather than spending it all on items like candy or toys, encourage your children to think about other items and activities for which their money could be used, for example, saving for a bigger item, or spending it on experiences. Talk with them about the benefits of spending on experiences or investing, in comparison to spending on items that may not last.
Teach Children About Needs vs. Wants
Many parents struggle when trying to explain to their children the difference between a “need” and a “want”. This is actually a great opportunity to introduce children to concepts such as delayed gratification, budgeting, and self-control. Here are a few tips to help explain the difference:
Ask your children to categorize their purchases into “needs” and “wants”.
Help them make informed budgeting decisions by talking through what the money could be used for.
Help alleviate impulse buying by encouraging delayed gratification.
Go Shopping Together
Going shopping with your children is a great chance to practice these lessons. Use shopping as a learning experience, rather than a chore. Here are a few tips for shopping with children:
Evaluate prices of items and compare them.
Discuss the concept of budgeting and teach them to be mindful of spending.
Encourage using money to buy items which last longer or give them more experiences.
Explain how sale items might need to be thought through in terms of value.
Set Up a Savings Plan
Establishing a savings plan is a great way to practice financial literacy with your children. Plus, by setting up a savings plan for them, you’re taking the opportunity to get them excited about their financial future. Here are a few tips for setting up a savings plan:
Start small with a simple savings account.
Set a goal together, such as a specific item they’d like to purchase with their savings.
Allow them to choose how they earn and add to their savings.
Help them track their progress and watch their savings grow.
Teach Budgeting
In order to cultivate a proper financial attitude, children must be taught the importance of creating and sticking to a budget. Here are a few steps to teaching your children about budgeting:
Clearly define the concept of budgeting.
Set up an Excel sheet and teach your children how to track their spending.
Teach them the importance of budgeting for savings and investing.
Teach children how to make trade-offs.
Discuss Charity and Free Spending
Finally, discuss with your children the concept of charity. This is an important lesson for children to learn about the value of giving and how to use their money to help others. You could also encourage your children to treat themselves and their friends occasionally, as this is a valuable concept to teach children.
Teaching your kids financial literacy is an important step in ensuring they will have the knowledge and skills to have secure and prosperous financial futures. Make sure to define basic monetary terms, give an allowance, discuss spending and needs vs. wants, practice these concepts while shopping together, set up a savings plan, and discuss charity. With these steps, you and your children will be able to work together to create a secure financial future.
