Numerous studies Chip Flowers has seen, have shown that kids don’t have a solid understanding of money. They’re spending money as if it grows on trees, opening credit cards and living far beyond their weekly allowances. Good financial habits start in childhood and with only 17 states requiring a personal finance course for students, educating kids really lies in the hands of parents.
It’s important to start educating your children now about financial literacy. Here are five ways to begin now.
Explain Where Money Comes From
Many kids see their parents either walk up to the ATM or the bank and leave with money. No, there is not a magic money tree inside but kids may think so. There is more to these money outlets.
Take your child to one of these venues and explain what services are provided: a place to safely keep your hard earned money, receive cash or obtain a loan. If you take them to the bank, ask the manager if he can give your child a tour and explain what the bank offers.
Give Them an Allowance
As your child begins to understand the role of the ATM and the bank, you may have whetted their appetite to have their own money. Start giving them a set weekly allowance for the chores that they perform. This will enable them to see the relationship between working and getting paid. It will also help them as they grow older and begin part-time jobs, earning more money and seeing its value.
Create a Budget
Upon receiving money, it may be burning a hole in your child’s pocket. Learning to save and spend is important so creating a budget for you child can be helpful. This will allow him to do both with his allowance. Revisit this budget on a set basis and make adjustments based on your child’s actions and goals.
In addition, for your teenagers, start preparing them to leave the nest by introducing them to checking accounts and credit cards. By teaching them these financial basics and seeing the inflows and outflows alongside their budgets, it will make them more financial savvy when they’re living independently.
Learn the Difference: Wants vs. Needs
Whether it’s saving or spending, money management lessons need to include a differentiation between what we want and what we need. For kids, they may want a new toy or video game. By deciding if it’s a necessity or just a desired gift, this will build the foundation for managing finances and help kids learn to appreciate saving money for items they want. You’ll be surprised how conservative kids can be with money.
Use the Piggy bank
With your kid’s weekly allowance or a money gift, take that piggy bank in your child’s room and put it to use. By saving money, it will allow kids to discover its value. You can start with a mutually agreed upon weekly goal or percentage. To show your commitment, also put aside some money with your child.
For older kids, have them open a savings account. This will provide an opportunity to learn about savings, interest and fees. Discuss different savings accounts and help you child decide which is the best choice for them.
These five steps are just the beginning of your kids’ financial education. By developing good habits early on, your children will have a greater understanding of money. They will take these habits with them as they grow older and face the many challenges that will come with money.