Kids and Money: Passing On Good Financial Habits
Becoming financially literate is just like learning a new language; It requires education, practice, and repetition to fully grasp and apply financial literacy in the world. Just as with foreign language, the sooner children are exposed to financial lingo, the better. However, as money-spending, saving, investing, donating adults, it can be easy to pass along bad money habits from the get-go. Here are several ways you can ensure your child is creating positive financial habits at an early age that will carry on through their teenage years and into adulthood.
Include Children in Appropriate Financial Discussions
Being exposed to financial discussions can greatly benefit children and teens, as long as the topic is appropriate for their age. For toddlers and very young children, a good place to start is with the basics: What is money? How do you earn money? How is money used as a means to buy things? These concepts are fairly easy to grasp, and just hearing the words will help a child become more comfortable talking openly about finances.
When children get a little older, you can include them in simple, everyday financial occurrences. Explaining to a child how you calculated a tip or sale price will help them understand the importance of thinking about how they are spending their money. Plus, it’s not a bad thing if they pick up a little math along the way!
As your child gets older (and monetarily wiser), you can begin to explain to them the correlation between work, earning, and spending, along with the consequences of spending more than they make. These conversations, combined with practical applications like earning an allowance by doing chores, opening a bank account, and choosing whether to save or spend will help cement your child’s financial habits.
During your child’s teenage years, basic discussions about financial stress and how to avoid it become important. The majority of adults’ spending habits become permanent while they are in college, so this is a prime time to make sure your kids understand the importance of managing money well.
Lead by Example
More expensive isn’t always necessarily better. This is a counter-intuitive point, but if kids see you proving it every day, they’re much more likely to understand and adopt this principle. When you buy generic instead of brand name cereal or smaller brand running shoes instead of Jordans, your child will see that they can still get quality without spending extra money on a brand name.
On the same note, if your child sees you consistently making smart money choices, including investing, saving, and avoiding frivolous spending, they’ll learn to mirror that behavior as they grow up. Understanding responsible spending will give them a leg up on most other children their age.
Reinforcing with Practical Application
There are four ways to use money: save it, spend it, invest it, and donate it. When you couple financial conversation with practical application, you can ensure your child understands these four concepts and their pros and cons, no matter what age they are. For young children, opening a bank account is a great first step. This action gives children real responsibility and control over their own money, allowing them to see first-hand how money can grow in savings or how overspending can get them in trouble.
As they grow, introducing four physical buckets, jars, or piggy banks, each labeled with save, spend, invest, and donate, can help children understand how to balance their finances and what type of money use is a priority for them.
When children evolve into teenagers, allowing them to work a part time job (as long as it doesn’t impact their school work) gives them a realistic view of just what it takes to earn the money they want to spend, save, invest, or donate. If they have a good foundation to build on and are comfortable talking openly about finances, they’ll be able to come to understand the difference between short (going out for ice cream Friday night), intermediate (saving for a trip this summer), and long-term (saving for college) goals, and the importance of balancing all three.
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