One of the most important things you can teach your kids is how to manage money. It may not seem like a priority, but it should be.
The habits we learn at a very young age stay with us for most of our lives, so it is never too early to teach your children the importance of good financial management.
It may seem like a really difficult thing to do; how can you teach someone the value of something like money when they have just learned to count!
Don’t worry! Help is at hand
This short guide will provide you with the top 10 financial tips you need to teach your kids.
It’s important to start early
- Make money real
Children can be introduced to money from a very young age. Give them physical notes and the older one’s coins.
Explain to them the value of each note using real world examples that they can relate too. This one can be used to buy X, this one can also be used to buy Y.
Then make the whole experience real for them by allowing them to complete a transaction in a store, let them hand the cash over to the store clerk and take the goods in return.
Once they understand the function of money you can then try to use money in any counting games you may play.
For example, how many dollars is this note etc, its all about making them appreciate the value and use of money and embedding it in their daily life.
- Communicate your values
At a very young age you will probably start to give your kids an allowance. One of the most important things you can do when you start to do this is to also communicate your values around money.
When you first start to give them an allowance it is important to introduce them to important concepts like saving. Explain to them that while this amount of money may not buy what they want now if they save it they can have that in the future.
You can also introduce them to basic budgeting. This involves encouraging them to look at the difference between saving and spending.
Ask them what they need and what they want and work them through how much they can spend today if they want to achieve what they want in the future.
When doing this you can communicate your own values to them, show how you must save for a long time to buy X and talk about how you felt when you achieved what you had been saving for.
It’s important!
Teaching children to delay spending in order to achieve a bigger goal in the future is one of the most important things you can teach them.
- Take them shopping
When you are doing your weekly grocery shop its important to involve your child in the process. Show them the prices of various items and explain the difference.
Its also useful to show them the exact same items with different prices and ask them which one they would choose and why.
If they go for the cheaper option highlight that they can now buy another item but if they go for the more expensive item highlight that they can now buy less. If you see a sale item point out the opportunity that this offers. In the long term your children will copy your behavior.
As noted before, involve them if possible in the payment transaction so that they associate money with goods and saving money with being able to have more goods.
- Set financial goals
As soon as you start to pay your kids an allowance its important to help them set financial goals. If they decide they wish to purchase a toy, explain to them how long it will take them to save up their allowance to do so.
Every time you pay them their allowance talk to them about how they are now closer to their goal of getting that toy.
Explain to them how long it will now take and maybe offer them the opportunity to increase their allowance to make their end goal achievable more quickly.
You may even wish to help them to set up a basic budget. They can see their allowance come in and then go out on the various things they wish to spend it on.
These things again help to embed important life skills at a very young age.
As they get older
- Explain financial jargon
As we know there is far more to money than just notes and coins. As children get older its important to introduce them to other financial products, like credit cards and bank accounts.
After a point you may wish to have your child open their fist savings account. This is a great opportunity to explain to them the advantages of saving and the benefits of interest. If they save in the bank and gain interest, they will achieve their financial goals fare more quickly.
The other side of the coin is important too!
Your children will probably see you use your credit card quite often. Its very important to explain to them that this is not free money. Show them that you get a bill at the end of each month. Then its important to explain that if you do not pay the bill you have to pay interest.
You can use a simple game to explain this part to children.
Ask them would they buy toy X if it cost Y dollars. Then ask them would they buy the same toy if it cost much more. If not explain to them that really this is what happens if you use your credit card to buy things and do not pay it off at the end of the month.
- Money as a game
As they get older you can further embed good money values though play. A game like monopoly is a great way to introduce children to a wide range of financial concepts.
It encourages the saving of money and sensible investments in a fun environment. Whilst it may seem like a game it is a gain encouraging positive behavior and attitudes towards money.
There are a wide variety of other games that can be played too.
In the modern world however, your kids may play online games. This is totally different. In these games they can purchase virtual tokens with real money, usually yours, to try to go further in a virtual game.
It is important to discuss this process with your child and for you to highlight your values in relation to money being used in this way. It is also important that if they are buying virtual tokens in online games that they use their own money.
If all their allowance is gone after an hour gaming they will soon learn about what their financial priorities are!
Making it real
- Opening a bank account
The time will come when your children will be ready to open their own bank account. This is one of the most important steps in their financial education.
When you are doing this, it is important to fully involve them in the process. Bring them to the bank, explain to them what is happening and the benefits of doing this.
At this point you can also begin to talk about the future. How they will need a bank account when they get a job, what they will need to do if they wish to own their own home one day too.
Depending on their age it may be the time to also explain to them the concept of compound interest. You do not need to this is a very complicated way.
Keep it simple!
It can be explained this simply. Just say the bank will pay you interest on your savings this year and next year they will pay you interest on the interest!
This way you are again reinforcing the importance of long term financial management.
- Day to day management
Once they have a bank account it is important to involve them in the day to day management of the account.
Show them the online banking log in screen. Explain its lay out and explain to them what all the different options are.
Show them how it functions and show them their transaction history.
A positive thing to do is to show them the balance on their account increasing as the months have gone on. This is a form of positive reinforcement that will help to communicate your values to them.
Once you have done this you can show them where the interest rate they are receiving is listed and explain that to them. You may even be able to explain to them what the different account options are and the pros and cons of the other financial products on offer.
This is important!
You should allow them to make withdrawals at times.
When you do this show them the balance on the account getting lower. Remind them how hard they had to save to get it that high and ask them again to they really want to make that withdrawal.
It is all about putting in good habits at the start!
- Get a Job
At some time, it will be important to introduce them to the fact that there is no such thing as free money. If you want money you have to work for it.
It can also be used to increase your allowance and help you to achieve your savings goals faster. As we all know, it also gives you a much greater appreciation of the value of money.
Start by giving your child small paid chores to do. Once you pay them have them lodge the money in their bank account. Then explain their options to them.
This should be an ongoing conversation you have with your child as day to day financial management becomes something totally normal to them.
Once they get a little older and get a real part time job the work really starts of course. This is the point when you have to start making major expenses real for them.
Highlight the cost of saving for college and other major expenses. Make them think about how they will pay for these things, how much they will have to contribute and how long and hard they will have to work to do it.
It will become very real very quickly!
- 10. There can be no bail outs
During the steps above at times your child may ask you for more money. Maybe they have not saved as hard as they could or maybe they spent more than they should.
If this happens you must now teach them the most important lesson!
There are no bail outs. If you spent too much money and now you don’t have enough well that’s just tough. You will have to wait until your allowance comes through again or you will just have to take on more work.
If you do not enforce this rule, then all the work you have done previously teaching your child about money will be completely undone.
It will be hard!
This will be hard to do at times but its important that you do it. If they think that they don’t need any financial discipline, then they never will.
If you bail them out at this age, then you could spend the rest of your life bailing them out.
Be strong, it’s the best course of action for both of you! It doesn’t matter how tough this may be to do at times. It is so important for their long term financial management skills.
The financial tips in this article don’t cover everything but they should provide you with a great start when you begin to teach your kids about money.
Its not easy but it is worth it in the end! Being able to manage your day to day finances well is one of the most important things that a parent can teach a child. It sets them up well for a secure independent future.
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