Conversations about financial issues can be challenging to have with children. However, teaching kids about money is valuable. If we fail to educate our children about finances, we aren’t giving them the tools and understanding they need to have future fiscal success. Financial literacy is important, regardless of age.
Many adults in the U.S are not financially literate themselves. Americans need to do a better job of not only taking responsibility for their own finances but also investing the time to adequately teach their children as well. Here are a few ways you can teach kids financial literacy without pulling your hair out.
Let Them Experience Having an Income
While many kids get an allowance, simply giving them money decreases its value. Find a way for your kids to instead earn money. Give them a job and set a date for them to have a payday, just as anyone with a job would. Simple tasks for children could be taking out the garbage, washing dishes, taking care of any family pets, or mowing the lawn. Their pay could be as simple as $1 per day as long as they stay on top of their chores.
When children complete regular work, they learn how they are rewarded at the end of each week with a paycheck, just like an adult. Teaching younger children how you are paid for the work that you do is a great starter for teaching financial literacy in a long-lasting, meaningful way.
Teach Opportunity Cost
Kids should also learn how to spend the money that they earn. While most children are likely to want to run through the store and buy something immediately, you should take the time to explain to them that once they spend their money, it’s gone. You can help them learn this by having them physically pay the cashier themselves. Once they hand it over, they’ll realize that they cannot get the money back.
If your child is putting money into a bank account, you can practice putting money into the account at the bank and also making a withdrawal. Doing this together will help them visibly see money changing hands. They may even decide they don’t want to spend their money at all or save for a while longer before making a better purchase.
Teach Them About Loans
The majority of us will take out some sort of loan in our lifetime, whether it’s a mortgage, student loans, or a business loan. The next time your kid asks for money to purchase something they want, create a “loan” agreement that outlines repayment terms. For example, if your child wants to purchase a new toy for $10, tell them you’ll give them the money, but also tell them when you expect the money to be repaid.
You can help them by setting a repayment date and providing them additional work to complete to make enough money in time. If you really want to be serious, you can introduce a late fee, especially if your child is old enough to understand the concept. Try to avoid simply deducting the money from their weekly pay. Have them physically hand you the money. Talking about credit cards, loans, and the value of saving can also be a part of this lesson. Older children may be able to grasp the concept and importance of good credit. Need help with your own credit? These are the best credit repair companies of 2019.
Show How to Create A Budget
Unless you have some skeletons in your closet, there is a tremendous value to including your kids when you discuss your family budget and how you spend your money. An easy way to include your children is to show them a chart that shows how money is spent on things they use, but don’t necessarily think about costing money such as electricity, a mortgage, food, and car expenses.
Wants vs. Needs
Older children can grasp the concept of a want and a need. Your child may need a backpack for school, but they don’t need an expensive designer backpack. This is also a good opportunity to show them that even if they just want something if they save for it, it’s OK to make the purchase. They may just not get it right away. You can even help them make a budget and savings plan to save for the item that they want.
Use the Power of Play
Younger children love to play pretend. A fun family activity could be to set up a fake bank and store to practice counting money, spending money on items, and putting money in the bank. You can even have children practice paying for items that aren’t physical, such as a “movie ticket” to watch a movie together as a special treat.
Online games or an old-fashioned game of Monopoly are great ways to practice other fiscal matters such as investing.
Teaching kids about money is a lot to take on, but the lessons will last a lifetime. Teach your kids financial literacy and set them up for future success.