Money And Kids: How to Start Teaching Your Kids About Money
Let’s talk about kids and money: do you teach your kids about money? If yes, when did you start? If not, what’s holding you back?
Yes, you want the best for your kids, and you end up buying them anything and everything that you feel they deserve in life. But, also, are you providing them with the necessary lessons about life?
One of those lessons is money! Think about it, most, if not all, transactions in life touch on money. Money controls what you eat, where you live, education, health plans, entertainment, and so much more. Imagine your child growing up without the basic knowledge of money, and they start earning during or after university. The high likelihood is that they will learn about money management from experience, and it will not be pleasant.
Do You Talk About Money With Your Kids?
Parents often assume that exposing kids to money and family finances will probably spoil or expose them to the dire financial situation at home.
The truth is, whether you teach them about money or not, they will have to learn about it. So, why not start shaping their thinking and feelings about money from an early age. In fact, behavioral finance has shown that some of our behaviors around money are developed from an early age.
We see what our parents, guardians, mentors, and those around us behave towards money, and we start emulating that. The earlier you can begin the lessons about money with your little ones, the better their financial literacy.
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How To Start Teaching Your Kids About Money
1. Start Early and Start With The Basics
As mentioned, we pick up habits from those around us as we grow. From the age of three to four, children can already pick a thing or two from those around them. So this is the right age to start teaching them about money.
As you go about it, start with the basics. Things like what money is, what you use it for, and how you use it. Also, ensure that you use real money, like a coin or a bill. When you go to the shop, try to explain the process of buying items, paying for them with money, and showing them the receipts. If you are using a card, try to explain that it is still your money.
You must also remain consistent with these lessons because it is not something they will learn in a day or two.
2. Explaining Need vs. Wants
This is not going to be an easy one. When kids want something, it turns into a need. They cannot differentiate between these, hence the tantrums when they can’t get what they want. But as they start to understand the basics of money, start explaining the difference between things we want and those we need.
You can practice when you go shopping. Foodstuffs like groceries are things we need for nourishment, but candy is a want. Show them receipts for utilities and explain that these things aren’t free. With time, you can all brainstorm how to reduce such bills, like not leaving lights on when not in use.
3. Give Them a Piggy Bank
Apart from spending, your kids need to learn about saving. Think of it as teaching them about delayed gratification. Of course, you already know that saving, and regular saving at that, is a fundamental step in personal finance management.
So, get your little one a jar or a piggy bank. Every time they have some coins to put aside, let them drop them in the jar or piggy bank. As they learn and get used to saving, they will start learning about setting goals and planning.
Since your kid is still learning, start with short-term goals, like saving for toys they really want. You can also encourage them by matching their contributions with a certain percentage.
As they grow older and get used to saving, you can graduate them from a piggy bank to a bank savings account where their money can start earning interest. This will also introduce them to investing, compounding interest, and wealth-building, where they put money aside and watch it grow.
Related post: Saving vs Investing: Understanding The Differences
4. Teach Them About Earning
There is no better way to teach kids where the money comes from than giving them an earning opportunity. So apart from giving kids an allowance/pocket money, some parents let them earn from chores.
While doing house chores is something most kids are expected to do as part of helping at home, you can encourage your kids to do extra tasks for some cash.
5. Don’t Forget Loans and Debt Management
Back on campus, we used to see some students go on a shopping spree once the student loan hit their account. Sometimes you would wish that was you. Then it came to repayment when you got a job, and the deductions from your payslip started to hit you.
Not many graduates manage to get employment within the first or two years after graduating. All the while, any student loan, credit card debt, and loans from other digital lenders they might have are still accruing interests and penalties. When they get a job, the better part of their salary goes towards repaying debt rather than setting their lives.
The earlier your child understands any borrowed money has to be repaid, with an interest and possible penalties in case of missed payments, the better. Yes, they might need student loans for their education, but they will manage their finances better if they understand how debt works. It can help them avoid taking too much credit debt or help them understand the need for debt management and repayment plans.
6. Don’t Forget Taxation
I see these posts on social media where parents talk about how they take a portion of something, like deserts or money they give their kids. The goal is to teach them about taxes. These are hilarious, but to some extent, you realize that kids need to learn about taxes. Explain what taxes are, how they work, and even how to file.
Let me leave you with this video: