Financial literacy is one of the most important skills every adult needs to know for a happy, healthy life. Considering how crucial money-smarts are for successfully navigating the world without being burdened with constant stress and worry, there is remarkably little support in place to help us pass this knowledge onto our children. Studies indicate that children’s money habits are established as young as seven years old, so you’ll want to make sure those habits are good ones. Here are a few ways that you can help equip your children with the money management tools they will need for the rest of their lives.
One of the most important things you can do to teach your children about money is simply to talk to them, and be open about your financial situation. Many families treat money as an embarrassing secret. You might not want your child to brag or to feel inferior, but in the long run you are not doing them any favors by hiding your financial thoughts. Next time you have a serious conversation about money with your spouse, let the kids stay in the room. When they want an expensive new toy and it’s not in the budget, don’t give a fake reason but simply explain to them that you can’t afford it right now, or that they’ve already spent their toy allowance for the money. These little daily lessons help children to understand that money is a limited resource instead of viewing mom and dad as unlimited atms.
Give Kids a Starter Income
Instead of allowance, try a chores system where kids can earn money by doing work around the house — just like a job in the real world. They will learn that there are great rewards for hard work, and that they have the power to provide for what they want if they’re willing to work for it.
Let Them Make Mistakes
Learning to budget can be a difficult and frustrating process, as many adults know all too well. As when learning any new skill, children will make mistakes, and those are the best learning opportunities. The low-stakes world of allowances and treats is a perfect, safe way to learn about the disappointments and satisfactions of managing your money well. For instance, you might offer an allowance based on how much money you would usually be spending on toys and treats, and explain to kids that they will be able to earn their own money and use it however they want. Then, follow through by not buying them extras. If your child spends all their money right away and has none left over, that is an excellent learning opportunity. If you sweep in and give them more money or buy treats to make up the difference, they will lose out on a valuable opportunity to learn about consequences and budgeting.
If you child wants an expensive item, turn it into a teaching opportunity. Sit down together and set out goals, such as earning a the cost of an exciting and costly toy. Then, help you child form a plan to meet that goal. They may set aside half of their allowance money each week, or you may offer them extra chores to increase their earnings. Guide them as they save up their money and watch it grow before their eyes. When they reach their goal, take them to buy their prize and celebrate with them!