Just like all useful life lessons, teaching your kids how to use money takes a lot of time. Though, this is something all parents should do. According to the research made by the University of Cambridge, financial habits can be formed much earlier than at the age of 7 years. Therefore, if you want your kids to have good skills regarding paying with cash, repaying any kind of money loan, and managing incomes and spendings, you should start teaching them how to do it as soon as possible.
Not the least role is played by parents' behavior, as the children tend to follow their behavioral patterns. Teaching children how to manage finances is the responsibility of parents. So, what to start with?
Let’s discuss it further.
Discussing money with children, you should explain its good and bad sides. It’s vital to develop an understanding that money is an important part of our lives, but it is not the most important thing ever and kids shouldn’t become obsessed with it. The essence of these lessons should be not how to earn more, but how you manage what you have. Explaining what is money, try to make clear that this is simply a paper that can be exchanged to some goods (toys, books, food, etc.) and services, or used to help those, who are in need.
Also, it’s essential to give children an understanding of things like why it’s important to pay bills on time and why a person needs to have a job. The pattern “if you want to get a thing, you should spend some efforts on getting the money first” may help to understand why it’s important to spend within limits of what you earn. Do not forget to mention how living in debts will impact life in case of going beyond the budget.
Another thing which is significant is to explain the importance of making savings. Once you get your children into the understanding of why savings are important and how they help in getting desired things, it will turn into their habit. Furthermore, teenagers may consider the possibility to earn their own money. Once your child got an idea to earn some funds, do not try to talk him/her down of it.
And that’s excellent as they will receive not only extra money to spend but the responsibility and skills of how to deal with it.
So, it's crucial to let kids make their own decisions regarding how they will earn money, and spend it as well. There will be some mistakes in the beginning, but they will learn from them, make some conclusions and understand what to do next.
We’ll try to present the ways of teaching money lessons so that your kids could use particular examples and see how helpful wise approach can be. Let’s observe how you can explain to your child the earning and spending rules.
Giving children literally anything they want will not stimulate them to earn money. If they can always rely on financial help from parents, there’s no reason for them do get a job or plan a budget. But what if you would pay them a reasonable amount of money for home-help? That can really help your kids in acquiring new skills (and work ethics as well) and give a good start in learning how to be an employee.
There are many activities appropriate for children of different ages. At least, they can read about the working experience of other kids, and choose what suits them. For instance, they can start selling things like toys or clothes, which they’ve outgrown online (eBay), or offline (the nearest consignment shops). If your child is a creative person and fond of arts, you can create a website together and place his or her paintings for sale. The same can be applied in case if your kid is studying coding or creating animation. One more option is to help the neighbors or friends in doing some work at home like babysitting or mowing the lawns.
As you see, there are lots of opportunities for children to start earning money at an early age. You just need to support children in their attempts, guide if needed, or provide with resources where they can grasp some valuable information regarding ways of earning.
In addition to learning how to earn money, it’s also important to teach children to manage it wisely. And this skill lies in differentiating the wants and needs.
You can teach your children to understand the value of money by demonstrating your own responsible approach to it. For example, tell your child about your ways of avoiding overspending. For example, you want to buy a digital gadget, but aware that a few months later it will be much cheaper. Let’s assume that you decided to wait until the price will go down. Say it to your child and explain why you decided to do so. It will serve as a good spending pattern. Tell your children about holiday sales when they can buy the necessary or desirable things cheaper, explain how to use coupon code, etc.
Another tip on spending wisely is to track everything children buy so you could give a relevant piece of advice.
When children have some money, it’s natural for them to spend it at once. That is when your Suggest them to share the cost of a purchase with you or explain why they should pay for the purchase themselves.
Also, it’s necessary to teach children how to compare prices. For example, sometimes it is worth to buy a more expensive product of a certain label because of quality, but in other cases, you simply overpaying. To understand the definitions like “opportunity cost” and “prioritization of things to buy” better, think about creating a wish-list of future purchases. Once you get advanced in using it, show your children how to prioritize their desires. Additionally, you can create a chart together and monitor the progress in achieving their goals.
Little children can collect savings inside of piggy banks in the form of their favorite characters from cartoons, movies, comics, and so on. So, if they don’t have one, gift it. And let them gather the change they can find around the house, and save it to their piggy bank.
If they haven’t reached the saving goal, suggest the ways to do it. Some money challenges like Week Money, Month, Twice-a-Month, etc., may stimulate them to save funds.
Finally, when your children will manage to collect some savings, discuss with them what they can buy for the same price and let them select the most desirable option. Thus, you can help your kids to develop some saving habits, planning responsible purchases and understanding the importance to have savings for any cases.
Spare no effort in teaching your children how to spend money. Explain which purchase is a better option, but let them make a choice. And we also have mentioned that children will make some mistakes during their money lessons, as well as learn from them, make conclusions and search for solutions. And your help and support in such cases is a crucial element.
Explain to your kids how to stick to their spending limits and avoid impulse purchases. For example, go shopping together, but beforehand create a list and set a particular budget. And when your child will see and understand how to plan purchases, you can be certain in his/her ability to manage funds.
Money lessons won’t be completed without teaching children how to borrow responsibly. And there’s nothing wrong with applying for mortgages, loans, or using credit cards. But how we manage them can be both good and bad.
Sooner or later your children will go to college or university, and they may be tempted by using credit cards. Explain that a loan can be both a saving circle and a money pit. For example, a credit card can be a convenient financial tool that may help in monitoring expenses. At the same time, missed paydays causing debts. So, make sure your children realize it, as well as the need for paying off the credit card on time, and the consequences of not doing so.
Talking about mortgages and loans is also essential, and may serve as an explanation of why saving money is important. Still, there may occur situations when it’s necessary to take credit for buying a home, a new car, paying for studying at the university. Or get a personal loan to cover some financial needs. Especially if your children will decide to start working as freelancers and combine traveling.
See also: Understanding Loan Sharks Lenders
You can show your children that money is also a means of helping people. They can make small donations to medical charities, or something like that. Moreover, most likely your child has friends and therefore being invited to Birthdays from time to time. If your son or daughter has enough pocket money to buy a present by himself/herself, each celebration can be a good case study of how money can bring happiness if you spend them on people you care about. Finally, if your kids want to help somebody and have some money to spare, let them do it and support them in their intentions. Believe it or not, such deeds are very rewarding.
In this article, we tried to provide all the necessary money lessons that your children should learn. However, there are much bigger lessons that we as adults know, and as parents should teach them. But teaching the money lessons we mentioned in the article is a must. They will help your children to become financially savvy, responsible adults and feel more confident in their independent lives.
And remember, it’s never too late to learn these or other financial lessons. But it’s better to know them from a young age.