How To Teach Kids Money Management Skills
If you do not take the time to teach your kids about money, then they will most likely learn from someone else or find another source of advice. That is something you should certainly avoid. Given the importance of money management as a life skill, it is perplexing that schools offer no training in this regard. It is one of the fundamental competencies in navigating life.
As a parent you can teach your kids about finances. In this article I will talk about some methods I have used that have made my kids financially prudent and savvy in their spending practices. I will show you how to give your kids a head-start and how to teach kids money management skills that they need as adults.
Look at the United States subprime mortgage crisis between 2007 and 2010 that led to a Global Recession and millions of foreclosures, look at the exorbitant US credit card debt, $756 billion. You can only conclude that adults know extraordinarily little about money management. Exposure to financial training in our formative years is crucial to become financially responsible adults.
“To help the next generation avoid the mistakes of their elders, and to live financially fit lives, they need to be taught essentials about money” Beth Kobliner, author of the New York Times best-seller Get a Financial Life.
Kids can begin to grasp financial concepts as early as 3years old and form money habits by early as 7 years old. So, an early start is important.
Set A Good Example For Your Kids
Children learn by watching their parents. Set a good example and demonstrate good spending habits. If you are in the habit of impulse buying or swiping your credit card whenever you go out to the mall, then your kids are going to notice.
A 2013 report by researchers at the University of Cambridge stated that kids can form money habits by the age of 7 years. Your kids will watch you and learn from you.
Give Your Child An Allowance
Give your child a small weekly allowance as soon as she understands that money is used to purchase the things that she wants. You can increase the allowance each year on your child’s birthday. Discuss what she wants to buy with the money and plan for that purchase.
Offer your child an opportunity to occasionally help around the house to earn some extra income. Help your child to decide what to do with the extra income.
Use Clear Jars To Save Money
A piggy bank is great to teach kids money saving habits, but when you use a clear jar, they can see the money pile growing. Regularly monitor how much has been saved and make a big deal about the amount increasing. Talk about goals for using the money.
Show Them That Things Cost Money
Merely telling your kid that the Paw Patrol Snowmobile cost $10 is not enough. Help him take out $10 dollars from his clear savings jar and take him to the store. Have him choose his toy and then ask him to hand over the $10 to the cashier in exchange for the toy. Explain to him that without the money he cannot have the toy.
Show him opportunity costs, “if you buy that toy now, then you will not have enough money to buy that sonic the hedgehog cap.”
Have Your Child Set Goals
Make sure it is a concrete goal that does not take too long to reach. You want your child to see positive results for their efforts as soon as possible. You want to set them up for success.
Determine the cost of the item and discuss how much per week to save towards the goal. Break down the amount into smaller manageable portions. For example, the $15 Hot Wheels Monster Truck can be saved for by putting away $3 over 5 weeks. Every time your child adds to the savings jar, count the amount saved with him and explain to him how much more he needs to reach his goal.
Stress The Importance Of Sharing
Encourage your child to find ways to help others financially. Teach him about sharing, especially with those in need.
Have him come up with a small list of people or organizations that he wants to donate too. Your child should be complimented for merely coming up with a list. Then help your child to make a small contribution to an organization or person he has identified. It could be something like an animal shelter or church or anything else that qualifies for assistance.
Teach Your Child The Dangers Of Credit
As soon as your child is old enough to understand the concept of credit, you should have a discussion with her. Explain that a credit facility is not your money, and if you purchase on credit you are liable for the capital and the interest.
Involve Your Child In The Families Financial Decisions
Let your child witness you plan your budget and making payments. Involve your child in the decision-making process. Explain some of your financial decisions. Why did you buy one brand over another or why did you buy items in bulk? One brand is cheaper than the other even though it looks and tastes the same. Buying in bulk works out cheaper.
It Is Never Too Early To Start
Teaching your child about money is going to take time and a bit of effort before the message is received. However, if you want to raise a child who becomes a successful and financially savvy adult, then you need to take the time to teach your child now.
Kids need to learn to delay gratification and understand that they need to save for what they want. Money lessons early in life set the tone for later in life.