14 Ways to Teach Kids About Money
You want your children to be great at managing their cash in the future, but where do you begin to teach kids about money?
A University of Cambridge study showed that kids form their money habits by as early as 7 years old, and those eyes are watching each time you throw down the plastic. You can give your kids a financial head start by teaching them to understand money from an early age.
From introducing the concept of money to making their first investment, here's a roadmap to guide you through the process of your kid's financial education. Many of the numbered items have a linked article that goes deeper into the point mentioned.
- Introduce the Concept of Money: Introduce young children to coins first. Teach them the value of coins and encourage them to save their coins in a piggy bank. Use a clear piggy bank or jar so that kids can actually see their pile of money grow.
- Lead by Example: Explain what you are doing when you write a check, use an ATM card, and pay for groceries. Avoid actions such as making an impulse buys, and tell the kids you're going to wait one day instead and see if you really want to make the purchase. Kids are very observant and will learn many of their money concepts by watching you and copying your behavior.
- Open a Savings Account: Explain to children how compound interest works and show them how their money grows in a savings account. Expand to a checking account once they are ready.
- Use an Allowance: When children receive an allowance they must learn very basic budgeting and rationing skills. As they manage their allowance money, their money management skills will improve.
- Make Learning Fun: Play money games that encourage learning. Board games, online games, and homemade games are all possibilities.
- Allow Them to Make Mistakes: Let your children make their own spending decisions, even if it means making mistakes and wasting their money. It's a valuable teaching tool. However, be ready to step in and help guide them when they need it.
- Let Them Earn Money: Working summer jobs, becoming entrepreneurs, and working for mom and dad all help kids learn about business and hard work. If you pay an allowance, call the money a commission instead, and allow kids to earn various commissions for different household chores.
- Teach Children to Budget: Allow your children to plan and budget for a family event to practice their budgeting skills. Help them also understand the opportunity cost of spending money on one thing, that may keep them from having enough money for other things.
- Teach Your Teens About Credit: Help your children understand the concept of delayed gratification and the pros and cons of buying on credit.
- Introduce Taxes: Children will often be surprised by the withholding on their first paycheck. Explain the concept of taxes early on and their paycheck will meet their expectations.
- Encourage Charitable Giving: Introduce philanthropy to your children early and they will likely become eager volunteers and donors.
- Introduce Long-Term Planning: Teach your children about long-term savings and debt. Discuss the costs of college, cars, houses, and retirement early to give them a head start.
- Teach Them to Invest: Once they have mastered basic banking skills, encourage your children to learn about the stock market. Explore appropriate stocks and mutual funds with your children.
- Teach Children to Set Goals: Many successful financial milestones are achieved by goal-setting. Encourage your children to set savings goals and work towards them.