3 Life-changing Money Lessons You Should Teach Your Kids
Teaching kids good financial skills from an early age is critical for their personal development. Poor money skills can mess them up financially while good money habits can insulate them from financial challenges as adults.
Unfortunately not all parents consciously try to foster money skills in their kids. In fact, about 20% of parents, or nearly one in five, had never spoken with their kids between the ages of four and 18 about money basics. And even if they have, it is not done consistently or they aren’t raising awareness about these money matters at all .
There are a number of basic financial lessons kids should learn and here are a few to get you started:
Money lesson #1: Money is not something that you get out of thin air
When kids see money popping out of an ATM, they often don’t realize that money is a finite resource, while using credit cards create the impression that they can have whatever they want, whenever they want it, without having to work hard for it.
Funds deplete, credit cards incur debts
Explain to them that you work to make money, and the bank is just a place to keep the money. So the moment you spend using your debit card or the money that you withdrew using the ATM, then those funds deplete. At the same time, explain to them that purchases you made using your credit card have to be paid in full before the due date to avoid interests. As your children become more mature, show them how interest can double or triple the price of an item in just a short period of time.
Money should be earned
Instead of just handing out money to your kids, teach them how to earn it. You definitely don’t want them to think of you as a personal infinite bank account. So by teaching them how to make their own money, they’ll understand its value and how earning it leads to self-sufficiency, independence, and resourcefulness.
When your kids are ready to receive an allowance, talk to them about what housework you’d like them to do in exchange for the same and how often will they be receiving it. Be consistent in terms of how often you “pay” them as this will help them learn how the flow of money works, and how to budget accordingly.
Fun money making activities
Get your kids excited about finding ways to earn money. Have a garage sale, set up a food or drinks stand during summer, and arrange for them to wash cars for neighbors for a fee, or if they’re creative, let them create items like handmade bracelets to sell to friends or through an online store.
Discuss time, not just money. When discussing with your kids about what you are or aren’t spending money on, make the choices more vivid by quantifying the necessary labor behind purchases. For a child, the cost of a new phone — in terms of the number of hours or days you have to put in at work to buy one — has a much greater impact than simply knowing its price tag.
Money lesson #2: Good things come to those who wait
Having to wait to buy something you want is a hard concept for people to learn of all ages. However, the ability to delay gratification can also predict how successful one will be as a grown-up. Kids need to learn that if they really want something, they should wait and save to buy it.
This will also help combat the “buy now, pay later” mentality that could mire them in credit card debts later on. So, as much as you can, reinforce the idea that waiting pays off.
The best way to teach kids to start managing money is to give them allowances. If they blow their allowance on a new toy and don’t have enough left for something that they really want will teach them to save up in the future. They should learn first hand the consequence of overspending, so don’t bail them out.
Curbing impulse buying goes hand in hand with teaching delayed gratification. Show by example. Before you go shopping, create a list and a specific budget. Your kid will learn that planning purchases before you buy should be routine.
Needs vs. wants
The difference between needs and wants. This is an essential lesson, and the earlier your child learns this, the better. For example, ask them if they really need that new toy or do they need that new pair of running shoes instead since their feet are getting bigger? Understanding the true difference between what they really want and need will help them make better decisions about money.
Show your child how they can make the most of their money, and to also spend in a way that adds the most value to their life. Teach them by showing the difference between regular priced items and sales items, or items in malls versus items from factory outlets.
Money lesson #3: Saving is cool
Instead of thinking of money as something you either have or don’t have, show your kids how they can save for something specific and that they can have control over their spending. This is a great way to teach your kids to save and how money works.
Save up to pay up
Your kid is asking for a new toy? Tell him or her to save up. Once they have enough, take them shopping and let them pay the cashier themselves. They’ll never forget how good it feels to work toward a goal and be rewarded in the end.
It’s also a good opportunity to use basic math, such as adding and subtracting, to figure out how much they’ll need to save. By helping them get more comfortable with numbers at an early age, they’ll be better equipped to get their head around more complex concepts, such as how interest and loan repayments work, when they’re older.
Grow your money
Introduce your child to savings vehicles that could earn them interest, such as savings bonds and certificates of deposit. Search for a compound interest calculator online and show how ₱1,000 can grow with interest over time.
Given how important financial skills are to navigating life, it’s surprising that schools don’t teach children about money. Studies have shown that children as young as three years old can already grasp financial concepts like saving and spending. And a report by researchers at the University of Cambridge revealed that kids’ money habits are formed by age seven. So the sooner parents start teaching their kids about good finance practices, the better off the kids will be. It may take an effort, but it will pay off in the long run.
Taking the time now to actively teach your kids money basics at an early age will set them up to be pros at managing their finances in adulthood.