Whether funding a piggy bank or cosigning college loans, teaching your children healthy money habits can be a lengthy and difficult process. Financial literacy extends to planning, budgeting and properly managing money down the road, and may be one of the most important lessons you can teach them. The good news is that there’s no need to be an expert! A little open communication and habit building can help grow any child’s money skills. There are countless ways to introduce finances, but here are some basics to keep in mind.
Keep it age-appropriate
Finances are complex and nuanced. Depending on the individual child, their age and interest level, you’ll likely want to tailor your approach. Teenagers can interview friends or family members about their budgets, goals and habits, (NerdWallet, 2020) while younger children can learn through coins or an age-appropriate book (Consumer Finance Protection Bureau (CFPB), 2018). Regardless of age, remember that it’s never too late or too early to start teaching the basics of financial literacy!
Capitalize on events
Whether grocery shopping or car shopping, gearing up for a purchase of any kind can teach a kid a lot about finances. The CFPB offers talking points for getting a pet, buying a car or even just paying bills. These tactics can be repurposed for any situation though, as the basics stay the same: planning, problem solving and habit building. Talk through these practices with your child and illustrate how they apply to every expense, from the new puppy to the electric bill!
Encourage earning
Making, saving and spending their own money is one of the best ways kids can learn. Depending on your situation, you could offer an allowance, pay for certain chores or simply encourage your child to find a paying job. Discuss how some chores may be expected while others may be paid and encourage them to negotiate a raise when taking on extra tasks. If they’ve found a job outside of the house, don’t forget to discuss taxes and other withholdings. There’s nothing like being blindsided on your very first payday!
Promote saving
Once they have some money in their pocket, your child’s first instinct may be to spend. It’s critical to teach them from an early age that saving some of their money should happen on a regular basis, too. Ask them what they’d like to have enough money to buy in a few months or years and help them map out a savings plan. Set them up with a piggy bank or, depending on age and responsibility, a bank account. Then, Forbes (2019) recommends using short, simple phrases, like “I love to save” and “saving is a great habit” as encouragement.
Be prepared for questions
Finances are notoriously tricky to grasp, even for adults. Answer questions with openness and honesty and recognize the value in drawing upon your own personal experiences as supporting evidence. If you don’t have an answer, look it up and learn together! The CFPB (2016) offers a library of answers for common questions from kids, and may be a great place to start.
Every purchase you make, whether shopping for a bargain or saving up to splurge, sends a financial message to your kids. Initiate some verbal lessons to clarify these themes and provide them with powerful knowledge for their futures.
Published on August 17, 2020
