One of the biggest mistakes parents make is assuming their children are too young to understand how to handle money. Given the right context, even a very young child can be taught the value of a dollar as well as the importance of saving. Financial literacy for kids is easy by following this guide.
Financial Literacy Starts by Teaching the Value of Money
Show your kids early on that money comes from work and not from mom and dad. Establish a no work, no money dynamic. Make sure your child has age-appropriate chores from as early as he can do them even if it’s something as simple as putting his own toys away every night before bed. And make sure that he knows that it’s doing these chores that result in his allowance. Giving money to kids just because they’re kids is a mistake that can easily backfire in young adulthood with a feeling of entitlement instead of a strong work ethic. The best ways to save money doesn’t have to apply to just adults as kids can live the frugal lifestyle just as well.
Budgeting for Kids 101
Learning to work within your resources is an excellent lesson to learn young. Teach your kid how to create a budget for his money. Have him list how much he plans to spend, to save and to give to charity and then help him stick to it—especially the savings and the charity part. Does your son or daughter want a new video game or bike? Encourage him or her to work and save for it. With a young child, you might want to help motivate him with matching contributions from you and other relatives so that he can achieve his goals in a realistic time frame based on his age.
The Financial Literacy System
Financial literacy for kids revolves around creating a system. This system includes different areas of personal finance like budgeting. Part of effective budgeting is planning so you can make it from one paycheck to the next without going broke. This is true for allowances as well. To that end, you’ll want to give your child his allowance every week at the same time. This will teach him to make his money last and to plan for the unexpected. And don’t make your child ask for his or her allowance. You don’t have to ask for your paycheck, do you? Another way to motivate young children is to encourage them to keep a running tally of how much money they’ve got saved and how close they are to their goals.
Leave It Up to Them
While there’s nothing wrong with asking your child what he’s saving for and why, don’t try to color his decision. If he saves and then spends his money on a toy that turns out to be a dud, that’s a lesson he can learn from. The general rule is unless what he’s planning on buying is inappropriate or a danger to himself, let him do it; after all, it’s his money. Creating that sense of independence is very important. It begs to ask the question whether or not you should give your kids a debit card.
Set a Good Example
Urge your kids to watch you pay bills. Explain your organization system when you get a bill either electronically or via regular mail. This will not only show your child that everyone at every stage of life has financial responsibilities, but it will also teach him organization and planning skills. Teach him or her which tips you use to save money on your utility bills. Be transparent about what things cost. Point out what each bill pays for such as hot water, heat, electricity, food, etc. Make sure you put things in terms even a young child can understand. While you may not want your young children to have exact income numbers, there’s nothing wrong with explaining that the car payment every month is the same price as a new Xbox, etc. Another important reason to get your kid used to paying bills is to prepare him for college expenses. A child age 12 or 13 isn’t too young to understand this. It’s also never too late to start saving for your child’s college tuition.
It’s never too early to teach your kids about the value of money. Financial literacy for kids is an important lesson that will be useful throughout the entirety of the child’s life. Learning how to write in cursive or learning about the Pythagorean Theorem is useful and all, but essential money management skills is something that will be used every day. Teaching kids about financial literacy is an invaluable lesson to learn. Don’t know how to start? Read about the best ways to teach kids about money.