How to Teach Your Kids About Money
For some crazy reason, schools don’t teach kids practical living skills like managing money. That leaves you as the parent to impart this very important life skill to your child. Caution: you don’t want to wait until they are in high school to teach them about money and finances. It’s far better to start when they start elementary school and are in the mood to absorb information.
So, how do you go about teaching your kids such things? Read the information below.
How to Teach You Kids About Money and Finances
You love your kids. However, you likely want them living on their own by no later than when they finish their schooling. That provides a natural transition into adulthood. What you don’t want to do is send them out into the big bad world without knowing how to provide for themselves and their future.
In reality, there are six different aspects of personal financial management that everyone needs a basic understanding of to successfully support themselves. These six aspects include:
- The value of money
- How to earn money
- How to make financial choices
- How to save money
- How to invest money
- How to manage debt
Obviously, these lessons should be taught over time. Your six-year old child doesn’t need to know about investing for retirement or taking on debt to buy a car. You can save that stuff for later. With that said, it’s never too early to start teaching them about the other aspects.
The Value of Money
The best way to teach your child the value of money is to teach them it’s a very limited resource. It’s okay to tell your child they can’t have a toy because mommy and daddy don’t have money. Over time, they’ll come to understand that money is a scarce resource and when it’s available, nice things can be purchased.
How to Earn Money
After teaching them money is a scarce resource, you have the basis for teaching them how to create money. It’s absolutely appropriate to offer your young child $5 to take the trash out each week. When they fulfill their obligation, you have to fulfill yours. Likewise, you can withhold their allowance when they don’t fulfill their obligations. In the end, this will help reinforce that money has value and you have to do something to get something.
How to Make Financial Choices
Once your child starts earning money, you should stop giving. If they want to purchase something, they have the resources to do so. Over time, they will realize they can’t buy everything they want. They’ll naturally start spending their money on things that matter the most to them. As a child, that might be buying a toy car or doll. As an adult, that will hopefully be paying the rent and car payment.
How to Save Money
The one caveat to having them spend their money is they need to know the importance of saving some. The time to teach this lesson will come the first time they want something they cannot afford. That’s when you explain to them that if they would wait until they get one or two more allowances, they could then buy what they want. This is important because while savings in a choice as a child, it’s critical in adulthood.
How to Invest Money
By the time your child is a teenager, they’ll be able to grasp the concept of saving for the future (college, retirement}. This is your opportunity to teach them that while they are saving money, they can put that money to work to make more money. It might start with a savings account, graduate to a Certificate of Deposit and end up with them purchasing stock by their senior year in high school.
How to Manage Debt
Few people are lucky enough to be able to pay cash for a car or house. Eventually, your kids will need to understand the importance of their credit rating, when to take out a loan, the importance of making timely payments, and what happens if thing go awry. It is important to teach them about borrowing money so they understand the pros, cons, and implications. Teach them about auto loans, mortgages, direct lender installment loans for bad credit and good credit, and how their credit score could affect the rates and terms of loans. It’s a touchy subject, but they need to know what to do if they get in unexpected financial trouble. Just make sure to point out they need to repay such loans quickly.
Aside from love, the greatest gift you can give your child is the knowledge of how to stand on their own. You need to jump on the money thing as early as possible.