The task of teaching your child about money and finances may seem quite daunting, and you may wonder how you should even start, or why it is even necessary. As Forbes magazine points out, $845 billion in credit card debt in the US shows that even adults don’t know much about the essentials of money. By teaching kids about the importance of saving money while they are young, hopefully they can avoid some of the mistakes of their elders.
Why teach kids financial management?
It is important to teach kids financial management while they are young so they will have a good foundation of financial skills that can be built upon as they get older. For example, while a teenager will need to start thinking about getting a job, saving up for college, and learning to manage expenses, a younger child just needs to learn about the importance of money, how to use it and how to save it. Although the concepts that a younger child should learn may seem simple, they will need them to be able to expand them later as a teenager.
What to teach them?
Kids don’t need to make a life plan or get a job quite yet. Therefore, it is good to start with simple money-related concepts that will help them when they do need to make significant financial decisions later on. Once kids know what money is and why it is used, you can teach them how to spend money. Teaching kids about wants versus needs, and value versus cost will help them learn what to spend their money on, and what are good purchases to make.
Once your child knows how to use money, you should teach them why they should not spend all their money as soon as they get it, but save some of it for the future. Explain to them that if they save up some money, they could be able to buy a more expensive superhero mask instead of just blowing their money right away on several five cent candies. When you have introduced the importance of saving money, take them to the bank to open up a savings account, and take them there regularly so they become familiar with depositing money. This will help them build a healthy habit of saving up money that will hopefully continue on into their adult years. They should also learn to track their interest earnings in their savings account by doing this, and learn how to read bank statements.
How to begin to teach kids financial management
You can start introducing kids to money as soon as they learn to count, and especially once they have started learning addition and subtraction. Money can actually be a great way for kids to learn addition and subtraction. Take them to a store and have them pay for a snack by themselves, or bring them grocery shopping with you and have them help you estimate the cost.
As they get older, don’t be afraid to go into more complicated matters about money. For example, teaching them about the stock market and investments. You can explore the concepts of money growth and percentages used in interest. Also explain things like, “where does interest come from”? Or “why are there different types of savings accounts?” These are things that may not be taught at school or in mathematics. Instead of being merely theoretical, they have practical life applications, which makes math more relevant to kids.
You’d be surprised how much kids can understand about finances. When they can learn the concept of an investment, they can start looking at money as more than a way to just make a one-time purchase (such as for a toy or candy). They can start exploring ideas of how to make their money grow. For example, the idea here is that they may start to think of ways to make more money. Why not invest in materials to build a lemonade stand, so they can sell a product to earn more? Or buy a lawn mower and start offering lawn-mowing services in their community during the summer?
Tools to help teach kids about money
There are also some great games out there to teach kids about finances. From online games to apps for your phone, there are plenty of technological resources. For example, there is an app called Save! The Game, that teaches kids about wants versus needs. Another great online game that teaches kids various financial lessons is The Great Piggy Bank Adventure. Even board games like Life can teach your child about different expenses that will be encountered from college until retirement.
No matter what approach you want to take, it is important to start teaching your kids financial management from a young age. By learning simple saving and spending methods while they are young, they will be able to build upon these when they get older. So start teaching your kids how to manage their money today!
