As a society, when it comes to spending money, we are moving away more and more from using cash. This being the case, you need to give thought to how to teach children that money is earned from hard work and does not just drop from the sky. More and more, credit cards and online banking is taking the place of physical money. The concept will slowly start to become a foreign concept to our young as they do not see money being exchanged. They could begin to think that all you have to do is tap "ok" on a pad to pay for everything.
In an effort to combat this, parents need to make sure they are imparting age- appropriate money management skills to their kids from their toddler years to their teens.
When it comes to money, you want to make sure you are passing on a positive message. We often can find ourselves telling kids "we don't have money for that" or " we are broke". It is best to avoid using phrases like this because it sets a negative tone towards money. Try and use phrases like "that is not in the budget this month" or "We have other priorities right now". It is best to explain that you have other money commitments and try to show them how to prioritize their wants vs. their needs. Using limiting words won't achieve this.
Teaching children the basics of finances can start as young as preschool. Start by offering the opportunity for them to earn some money for small tasks. Maybe they get something for emptying the silverware from the dishwasher (be sure to take out any knives of course). You can let them have some say in what they want to purchase but at the same time, lightly introduce the idea of a want vs a need. They of course will still want that lollipop, but the more you do this practice with them, it will eventually come into use later down the line. And eventually they will get that once you spend your money, it is gone.
A little pocket money works well for teaching young kids about saving. You want to come up with a goal together that they want to work towards. This can be a toy or a game they want. You want them to be motivated to save since most of us will want that instant gratification, kids are no different. This will teach them patience and see that waiting can be satisfying too.
As kids start to get into the tween years (10+), you can give thought to including them in your discussions about the household finances. Explain the difference between what are the "essentials" and what are "family treats". A great way to put their newfound knowledge into practice is to give them a budget for something. Maybe they are need of summer clothes, being in charge of a budget will allow them to make financial decisions like whether they want to buy the more expensive outfit and if there is enough left over for a pair of shoes.
The teenage years are super important for getting your kids on the path to financial independence. Help them become smart consumers by teaching them to do comparative shopping. Nowadays, most kids 14 and older have their own cell phone. This presents a great learning opportunity. Before purchasing the phone, have them shop around to compare plans and prices and see what they come up with. If you can have them come up with some money for part of the cost, even better. They will get a lesson in taking control of their money which is key to financial independence.
Parenting with the notion that you want to give your kids everything you didn't have can be detrimental to your child's view of money. Yes we all want our kids to be happy, but buying them everything they ask for just creates entitled kids who turn into entitled adults. Make an effort to show them that having the best is not acquired from material things. Spending quality time that does not involve constant trips to the toy store will help achieve this. They will eventually build up a strong sense of self that is not tied to material things.
Involving your kids in family budget meetings is a great way to show them how you handle finances for the family. Be sure to discuss things like how you might be saving up for your next family vacation or big ticket item. Give them an idea of what it takes to run your household. Provide a breakdown of your monthly bills and other expenditures so they can see what your hard earned money goes to each month.
If your child is working and earning some income, you should open a guardian or custodial investment account for them. They can put in as little as $15/week or more if they can and have it grown over time. This is a great way to get them started in investing and seeing the benefits of seeing their savings grow over time. The account is under your control until either 18 or 21, depending on the state you live in. One thing to keep in mind, with the account in their name, it will be considered an asset when it comes to apply for financial aid for college.
As your kids get older and definitely before they go off to college, start having conversations about credit card debt and student loan debt. Explain to them in detail how credit cards work and how quickly one can fall into debt. Remind them it is not real money even though it seems like it is. Let them know the process one has to go through if they wind up in major debt. It will make them think twice about their spending habits. Also have the talk about the importance of their credit score and how this is all tied together.
It is important to not forget about talking to kids about all that advertising they see on TV. Explain to them that the goal is to get us to buy a product or service. Take the time to sit and watch TV with your kids and talk about the advertisements that come on. Ask questions as you watch them like "who created this product" and " what are they trying to tell us". The point is not to identify the brand but show them that the motivation behind the ad is to sell something.
As a parent, on of your main responsibilities is to teach your children about money. You need to provide them with the right tools and guidance on how to earn, spend and manage their money. It is never too early to start the conversation, and if your kids are older, it is never too late. Instilling good financial habits will give them the head start they need for a happy and financially sound life.