Children develop money habits at a young age, so it’s important to teach them about financial responsibility early on. According to surveys, the number one place Americans learn about personal finance is from their parents. Like it or not, if you’re a parent, it’s up to you to teach your kids about money.
Here are 10 ways to go about it:
1. Bring Them a Piggy Bank
One of the dangers of becoming a cashless society is it makes it harder for us to control our spending. After all, think about how much easier it is to spend with a credit card or online payment than it is with physical cash.
A great way to start teaching your kids about the value of money is by getting them a piggy bank or clear jar where they can store their dollar bills and coins. The main thing is that your children get to visualize money and actually watch it grow instead of just thinking about it in abstract terms.
2. Pay Them Commissions, Not an Allowance
The principle of earning one’s keep is a basic underpinning of our society. The best way to ensure your children understand that adults perform work in exchange for money is through action.
Instead of giving your child an allowance, give them tasks to do in exchange for money. These could be simple tasks like mowing the lawn, cleaning the dishes, or even making their bed each morning. The key is that your kid understands the transactional relationship between being productive and earning money.
3. Teach Them About Value
As the parent, it’s necessary to supervise your kids but it also important to encourage them to make their own decisions.
Let’s say your child wants 2 things but has only earned enough from their weekly chores to afford one. Ask your kid to decide which of the 2 items they value more. Use this as an opportunity to teach them the basic principle of opportunity cost: that if they choose option A, it means they won’t be able to choose item B.
What if they’re really upset about missing out on item B? Encourage them to put it down as a savings goal (see tip #5).
4. Open a Savings Account
It’s a good idea to teach kids about the importance of saving early on. This can be done by opening a savings accounts for your child and encouraging them to deposit a percentage of the money they earn from chores.
A savings account is not only a place where your child can start building a nice little nest egg. It’s also a tool that teaches your children about important concepts like compound interest, i.e. interest earned on interest.
5. Have Them Save For a Long-Term Goal
Speaking of saving, encourage your kids to save money for long-term goals. As adults, we aspire to save money for big purchases like a home, a car, or a vacation. But the principle of working toward a financial goal can be instilled in young children too, even if the goal is worth only $5 or $10.
Through action, your kids can learn the value of saving. Trust us, they’ll never forget that rewarding feeling of reaching their goal.
6. Teach the Importance of Giving
Once your child has a nice amount tucked away, teach them the importance of giving. Let them choose who to donate to – just as long as it is going to a positive cause and to someone or something that needs it.
As with the earlier point about savings goals, this is a teaching moment. Again, your kid won’t forget that feeling of doing something good for someone else.
7. Demonstrate Responsible Behavior
As every mom and dad knows, kids will mimic their parents’ behavior – good and bad. Studies show kids develop money habits between ages 3 to 7, so it’s important to demonstrate good behavior early on. Set a good example when it comes to spending, saving, and borrowing, and your kids are sure to follow.
8. Let Them Make Mistakes
As parents, our natural instinct is to protect our kids. But from a teaching perspective, it’s often better to step back and allow them to make mistakes. Bailing out your kid when they make a mistake with money may prevent tears now. But stepping back can help prepare them to handle bigger money challenges later on in life.
9. Order Them Fun Books on the Subject
Search around and you’ll find an abundance of children’s books about money for all ages.
The Consumer Financial Protection Bureau is a good starting point for kids’ books about personal finance. Its library includes books about prioritizing, spending, saving, borrowing, sharing, setting goals, and problem solving.
For example, there’s Curious ‘George Saves His Pennies’, a book for kids aged 4+ about how a savings bank helps George practice sharing and borrowing. And there’s ‘A bargain for Frances’, for kids aged 6+, a story of how Frances had to work on prioritizing when she bought a tea set.
10. Educate Yourself
Here we’ve covered 10 simple ways of teaching young kids about money. To explore further, check out one of the many books on the topic.
Here are a few recommendations:
- “Smart Money, Smart Kids: Raising the Next Generation to Win with Money,” by Dave Ramsay and his daughter Rachel Cruze.
- “The Opposite of Spoiled: Raising Kids Who Are Grounded, Generous, and Smart About Money,” by Ron Lieber.
- “Rich Dad Poor Dad: What the Rich Teach Their Kids About Money That the Poor and Middle Class Do Not!,” Robert T. Kiyosaki.
Good Habits Start Early
Kids begin developing lifelong habits at a young age. Teaching your kids early on to be responsible with money is crucial to helping them become financially responsible adults.
If you’re looking to get your own finances in order, a personal loan from a top provider can help you cover short-term debt so that you and your family can look forward to a more secure financial future.