It’s never easy to talk about money, especially with children. On the other hand, starting the conversation early can help them develop a greater understanding of financial management down the road. Children who learn about good financial skills from a young age have a better chance of financial security in the future.
If you want your children to have a good financial footing in their adult lives, they need a concrete understanding of money management.
This involves showing them the true value of their money and how to use it wisely. By teaching your children about budgeting, credit and savings early on, you can give them the knowledge they need to succeed. The sections below go over strategies and methods you can use to help instill financial responsibility in your children from an early age.
Start Teaching About Finances Early
The National Financial Educators Council reports that only 23 percent of surveyed children say they speak with their parents frequently about money. Yet even at a young age, children have an idea of amount and size, and are able to tell the difference between more versus less. To begin teaching them about money, you can build on this knowledge with simple activities.
For example, one strategy to increase their exposure to money is to have your children count coins. While sorting coins, ask which pile has more and what each coin is worth. This method helps children learn from an early age the value of different types of currency. Once they grow and can follow more difficult concepts, you can teach them about price and sales using store tags. Explain what a discount means and why you buy certain items in bulk or at another store.
Once they’re even older, you can have them calculate the cost of your purchases to increase their mathematical and financial literacy. These small exercises provide a foundation for young children to build on in school. By exposing them to the reality of money, they gain foresight on its uses and ways to save.
Encourage Entrepreneurship in Your Kids
Every child loves receiving money, whether it for birthdays, special occasions or their allowance. By encouraging your children to find opportunities to earn money, they will gain a taste of their interests and can learn the value of hard work. Whether it is the classic lemonade stand or a homemade bakery, kids are more than excited to get active in the community with a financial incentive.
Help your children brainstorm responsibilities or jobs they can do to earn their allowance. This can include performing house chores, participating in extracurriculars or getting good grades. Make sure the jobs are within reason and will help them develop skills. Some examples include:
- Walking neighborhood pets.
- Improving their scores on weekly quizzes or tests.
- Volunteering in the community.
For younger children, work can be closer to routine tasks such as getting dressed, cleaning their room or completing homework. As they grow, continue to challenge them with new activities or helpful tasks. Taking on responsibilities to earn their allowance is a great way to teach the value of money and prepare your children for getting a job one day.
Emphasize the Benefits of Financial Freedom
Once your kids begin to collect money, the next step is teaching them how to manage it. Should you let them spend it as they please, or place it in a piggy bank for a rainy day? It’s important to give your children the freedom to decide what to spend their money on so they can learn to choose their purchases wisely. Furthermore, when they choose an item that is too expensive, they will also learn the lesson of saving for a goal.
To give them a real-world situation, include your children in major family purchases. When saving for a vacation or buying a car, teach them about the importance of doing research and the other factors that go into your decision making. Getting early exposure to making large purchases opens their eyes to the reality of spending and saving.
Teach the Gift of Giving
Teaching the habit of giving can never come too early. Going over the benefits of philanthropy can help your child to understand the joy that comes from giving to those in need. By joining a volunteer organization, giving to charity or helping a friend in need, your children will learn the concept of helping others.
According to a survey by the Corporation for National & Community Service, when both parents and siblings volunteer, 86 percent of youth follow their examples. Children who learn to volunteer and donate from an early age are more likely to appreciate community values and contributing towards a common good. This decreases the chance that your children will retain selfish impulses as they grow older.
Discuss Saving and Self-Control
Psychological research shows that children younger than 5 have a noticeable lack of delayed gratification control. Delayed gratification is the act of resisting an impulse for an immediate reward in the hope of getting a more valuable reward later. Essentially, it tests the patience of your child. Temper tantrums and crying fits are a testament to young children’s inability to see a larger picture. By teaching your child delayed gratification, he or she will learn that good things come to those who wait.
For example, if your child asks for a toy each time you visit a store, you can explain that waiting can result in better presents during the holidays. Learning delayed gratification can set your child up for good credit card habits in the future. On the other hand, the “buy now, pay later” thought process can lead to credit card debt. Therefore, the earlier you teach your children about impulse control, the better off they will be financially in the future.
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Though you may allow your children to make spending decisions, make sure to take the time to explain the differences between needs and wants. At a young age, it can be hard to put aside their emotions and impulses. This is an early stage of budgeting — questioning whether expenses are necessary or a luxury. Having this skill will help them make smarter decisions in the future and save money while they are young.
Lead by Example
Children learn from mimicking their parents. Therefore, another great way to teach your child about financial responsibility is by practicing making smart financial decisions yourself. Your children will emulate the same actions you do, so it is important to demonstrate good habits. By explaining to children the reason you wait for a sale, the amount you spend on activities or the number of toys you can buy, they can grasp the concept and apply it to their lives.
Before you know it, your children will begin adventuring in the world as adults. Budgeting and smart spending practices are crucial for living practically. By exposing your children to smart financial practices when they are young, they can gain valuable knowledge about saving and budgeting and become financially responsible adults.
Related Article: How to Teach Your Child About Money