The way many adults deal with money issues often stems from the lessons they learned as children. If your parents had bad money habits, chances are you might too, considering almost 50% of all U.S. households are living paycheck to paycheck. But what can you do to help your children develop good money habits? Here are six tips for teaching your kids about financial literacy.
Start With An Allowance
An allowance gives children the opportunity to start experimenting with money in a tangible way. Have your child do chores in exchange for a certain amount of money each week. Then help them figure out what amount to save each week or month. As they save money, consider matching a percentage. This can give them an introduction into how 401(k) contributions work.
When your children ask you to buy something for them, have them use the allowance that they’ve saved to buy it for themselves instead. This will instill delayed gratification within them and help them learn the satisfaction in earning money. It may also help them consider whether they really need something or not. Allow them to make mistakes as they learn how to manage an allowance, but resist the urge to bail them out with more money when they burn through their cash too quickly.
Include Children In The Household Budget
Show your older children what the budget is like in your household. Explain to them what money comes in and what money has to go out each month for bills. This helps make money concepts more real when they are given a visual representation of how things actually work. Have them sit next to you while you pay your bills or do your taxes. Let them see what balancing a checkbook or keeping track of expenses looks like.
Another great way to include your child in household budgeting is to take them with you when you go grocery shopping. Explain to your child how much there is to spend and have them add up the cost of the items as they are placed in the cart. You can have them search online and in newspapers for coupons. Whatever amount they can save on the shopping list, you can have them keep it for their savings to incentivize them and make the experience fun. This can be an excellent experience in learning how to deal with limited funds like 40% of people who can’t afford basic necessities.
Develop A System For Savings
There are a few different ways you can help your child develop a system for savings. One option that works great for younger children is the three piggy banks system. Three piggy banks are used for different purposes. One is for savings, the second is for spending money, and the third is for charity like supporting the 1 million volunteer firefighters in the United States or a current social cause. You can also use envelopes for different financial goals and have your child decorate each envelope to give them visual motivation towards achieving these goals. For older children, you can start a savings account for them either online or at your local bank. There are many institutions that offer special promotions and rewards to incentivize children to save money.
Instill An Entrepreneurial Spirit
One of the best things you can do to teach your children financial literacy is to instill an entrepreneurial spirit. Having your children earn their own money can benefit them in multiple ways and makes money more meaningful to them. They can earn money through their own lemonade stands or by shoveling the neighbors’ sidewalks or cleaning cars. They can even sell their stuff they no longer want by having a yard sale. Earning their own money can reinforce math skills and show them what it takes to earn money in the real world.
As they are earning their own money, remind them about the expenses that are involved in running a business. If they’re washing cars, they’re going to need to buy cleaning supplies. If they’re running a lemonade stand, they will need to stock up on ingredients. Make sure that your child pays for these expenses out of the money they earn. This will help them better appreciate the hard work involved in earning money.
Play Money Games
There are tons of great financial literacy games you can find online and through apps for free to help your children learn about money. These games cover everything from running a business to shopping or even buying groceries at the store. You can even play board games as a family. Monopoly and Life are two excellent games to introduce children to the concepts of saving, spending, and investing wisely.
Help Develop Their Financial Vocabulary
Many of the terms used around finances can seem like a foreign language to children. You may not even be familiar with these terms yourself. It’s important to take the time to learn the lingo around money. Terms that you may want to help them learn include vocabulary such as compound interest, overdrafts, assets, and liabilities. There are many free resources online that can help you explain these terms based on your children’s age. If you can, try to give them real-life visual examples of these vocabulary terms so they can get the full picture of what you’re trying to teach them.
Teaching your child good money habits doesn’t have to be a pain for either of you. You can make the experience positive and fun to encourage them to keep healthier money habits for the rest of their lives. Teaching your children about financial literacy just might be the best investment you’ll ever make.