It’s important to teach kids about money from a young age. But it can seem daunting if you weren’t taught how to be financially responsible growing up. Here are fantastic tips for how to teach kids about money while they are young.
Money smart kids know how to save, spend wisely, and be charitable. As a parent, you can help your kids become money smart by teaching them financial skills and instilling good values early on.
Most parents want their children to be financially responsible and money smart. But, how do you instill these values in your kids?
Here are some tips from experts on raising money-smart kids. By following these simple tips, you can help your children develop healthy financial habits that will last a lifetime.
How to Teach Kids About Money
1. Start early
It’s never too early to start teaching your kids about money. You can begin by helping them understand the value of a dollar. Explain to them basic concepts like a dollar is worth more than a quarter, and that a dime is worth more than a nickel.
Help them understand that some items are worth more money than others. For instance, explain that a new toy may cost five dollars, while a used toy may only cost one dollar.
2. Use real-world examples
When you’re teaching your kids about money, use real-world examples to help them understand. For example, when you’re at the grocery store, let them know how much each item costs and why you’re buying it.
If you’re going out to eat, explain how much the bill will be and why you’re paying it. Use everyday situations to help kids understand the value of money.
3. Help them understand the value of money
Most kids learn about money in one of two ways: either their parents teach them about it, or they learn the hard way by making mistakes with their own money.
It’s important for kids to understand that money “doesn’t grow on trees”. Explain to them where money comes from and how hard people have to work to earn it.
Help them see the connection between work and earnings by taking them with you to work, or assigning them age-appropriate chores around the house that come with a monetary reward.
4. Start early with an allowance
Teaching kids about spending and saving is easier when they have their own money to work with. Start them off with a small allowance that they can use to make choices about how to spend or save their money.
As they get older, you can increase the amount of their allowance and give them more complex tasks, like budgeting for a month or working out a savings plan.
5. Set up a budget
One of the biggest mistakes of people who make poor financial decisions or get heavily into debt is that they never learned how to make a budget and stick to it.
One of the most crucial things kids should learn about how to manage their money is creating a budget. Help them understand what a budget is and how to make one.
But explaining budgeting to kids can be tricky – how do you make it interesting and understandable for them?
Break budgeting down into simple terms that kids can understand. For example, explain that a budget is like a spending plan – it’s a way to make sure you’re not going over your limits on what you can afford.
The next step could be to help them set up their own budget. This can be as simple as writing down how much money they have and what they want to spend it on. Then, using their earned allowance, have them track their expenses over a period of time to see where their money goes.
This will help them see the bigger picture and make better choices about how they spend or save their money.
6. Encourage them to save
Saving money is an important life skill that will help your kids throughout their lives. Help them get started by setting up a savings account for them at your local bank or credit union.
Encourage them to deposit a portion of their allowance into their savings account each week. Explain to them that it’s important to save for a rainy day, and that they should never spend all their money on one thing. As they get older, you can help them set financial goals, like saving for a car or college.
You can also teach them about investing and different ways to save money. To teach them the value of investing in an employer-sponsored 401K plan, you could offer to match their savings deposits dollar-for-dollar up to a certain amount.
This will encourage them to save more and also give an understanding of why they should take advantage of employer-based retirement matching programs as soon as they can.
7. Teach them about needs vs. wants
One of the most important lessons for kids to learn is that there’s a difference between needs and wants. Everyone needs food, shelter, and clothing, but not everyone needs the latest toy or gadget.
Help your kids learn to distinguish between their needs and wants by talking about it when you’re making purchasing decisions as a family.
With so many material possessions available to them, it’s easy for children to get confused about what they really need in life. By instilling a few key principles, we can help them understand the difference between the two.
One way to explain the difference between needs and wants is by using the example of food. We need food to survive, so it’s a necessity. But there are many different types of food, and we may want certain foods because they taste good or make us feel happy. So while all food is a need, not all food is a want.
Another way to help kids understand the difference between needs and wants is by using the example of clothes. Everyone needs clothes to wear, but we may want certain clothes because they’re stylish or cool. So while all clothes are a need, not all clothes are a want.
Once kids understand the difference between needs and wants, you can help them start making better choices about how they spend their money.
Teach them to ask themselves whether something is a need or a want, and help them make decisions based on that. If they’re not sure, have them talk to you about it so you can help them make the right choice.
8. Show them how to be charitable
Giving back to others is also an important value to instill in kids. There are many ways to do this, but one easy way is to involve your kids in charitable giving as a family.
Each year, choose a charity to support and have everyone in the family pitch in. This could be through volunteering your time, or donating money or goods to the charity. Help them find ways to contribute to their community and make a difference in the world.
With these tips, you can help your kids develop into money-smart adults who are financially responsible and have healthy financial habits.
Looking for more resources? Check out these resources for raising money smart kids.
What other tips do you have for raising money-smart kids? Share your thoughts in the comments below!