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As a financial literacy expert, I know that introducing basic financial concepts to children is a great way to set them up for future financial success. Teaching early money management is the key to raising smart savers and investors, but not every parent knows where to start with these lessons. This guide for teaching your child financial literacy will give you simple ways to get started.
First watch your own language about money.
Be careful of the language you use about money around your children. Do you ever say, “Money doesn’t grow on trees, Pinch your pennies, or Save for a rainy day?” These are negative statements and build fear around the subject of money. And saying, “I can’t afford it” is a negative statement that closes your mind. Instead consider saying, “How can I afford it?” It triggers your subconscious mind and entrepreneurial spirit to find ways to create the money you need to buy what you want. We often underestimate the power of our words.
Why is it important for kids to save money?
Learning how to save money is an important financial skill that will set each child up for better financial success. We all want the best for our children and giving them the gift of financial literacy is a great way to help them become money savvy and financially independent as they grow into responsible adults.
The earlier you start their financial lessons, the more likely they will be to develop the money management skills that will serve them well through each stage of their lives.
How can parents teach their children to manage their finances?
Teaching children how to manage their finances is easier than you might think. Kids are smart and very quick to put new concepts to work. Even kindergarten aged children can understand the benefits of earning and saving money. In fact, as soon as your child can tell the difference between a $1 bill and $20 bill- they are old enough to start learning.
Giving children an allowance for jobs or tasks that are outside of their family and social responsibilities is a great way to develop their money management skills, while teaching them important life skills too. Being paid for completing household chores beyond a reasonable contribution to the family or as part of their own health and wellness will make them far more self-reliant, financially independent with their allowance and it will increase their confidence in their developing levels of responsibility.
Once they are earning money with their allowance, it’s time to teach them about saving money by opening their first bank account. Kids love to see how the numbers in their bank accounts grow as they contribute to them. Making their trips to the bank a special outing will get them really excited about their financial milestones, which will keep them engaged in building their new financial habits.
The next stage of financial literacy is to teach them how to make real life spending decisions. There will always be the latest and greatest things that will catch your child’s eye. Rather than buying or denying those things, help your child make their own spending decisions and better define the value by discussing what benefit it will bring. By showing them how much the item costs and calculating how long it will take them to save for it, while still contributing to their savings or investing account, they can decide if it is something they really want to purchase. This way they start to learn the value of money, better money management skills and healthier spending habits.
For pre-teens and teens, you can even get them involved in bigger household spending decisions, like computers, furniture, small appliances, and so on. Have them help you with the research, costs and necessary budgeting choices needed to purchase these items without going into debt.
Encouraging your older children to look for other ways to earn extra money, is also a great way to teach financial independence and responsibility. Doing yard work for neighbors, babysitting, selling old toys or outgrown items, or engaging their entrepreneurial skills by starting their own business, like a lemonade stand, are all great ways to support greater financial success.
Every lesson you can teach them when they are young will improve their financial literacy and increase their confidence in the financial decisions they make for themselves as they grow up.
Finally, be sure to celebrate their financial milestones! The things we celebrate are far more likely to be repeated. Every little win your child has, builds his or her confidence and moves him or her toward a successful financial future. That is definitely something to get excited about!
Financial literacy can be a lot of fun, and when it is, you will get even better buy in from your children. That is one of the reasons I created ThriveTime for Teens. In this game, teens start in high school and have part time jobs. They will be faced with money and life decisions like buying cars, managing expenses, giving back to their community, paying for college, using credit cards, buying stocks and starting businesses. The winner is the teen that not only generates income and makes positive financial decisions, but also effectively manages their time and does good for others in their community.
Financial Education is the gift of a lifetime!
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