As an adult, many of us assume our children have more financial sense than they actually possess. We think that somewhere along the way, they have learned about budgeting, bill paying, and banking principals, but the truth is our kids probably don’t know any more than what we have taught them.
In reality, the first money lessons a child gets come from their parents and experts agree that the way parents teach and reinforce those concepts will have a major impact on their kids avoiding major financial problems later in life. So, a question for parents: How equipped are you to teach your kids about money?
If you don’t feel confident about creating a money curriculum for your child, don’t worry, there’s help. Start by planning your own financial future with a Certified Financial Planner®. You can take a close look at where you need to be with your finances and gather ideas to teach your kids about money as well.
However you personalize the lesson, every parent needs to involve these basic concepts in a child’s money education:
Work: The first great lesson isn’t so much about money as it is about what it takes to earn money. As early as kindergarten or first grade, your child is probably going to have to start paying for things. Children need to understand as early as possible that a good day’s work should deliver a good day’s pay, so it’s a good idea to come up with age-appropriate chores in exchange for an allowance. The best place to start is with simple jobs like setting the table and making beds. For older kids, yard work, laundry and housecleaning are good to add to the list.
How big should that allowance be? Try to match the allowance closely to the expenses you want your child to cover and leave a little wiggle room for treats. That way, the child begins to understand choices while learning that spending requires limits. Offer options that allow him or her the opportunity to earn additional money for extras such as toys or privileges – then stress why working for treats is important. Keep a frequent watch over how they’re handling their cash and then allow them more leverage as they demonstrate wise decisions.
Saving: Once you teach your kids about spending, help them identify larger goals they have to save for. Buy a piggy bank – young children relate very well to this tried-and-true symbol of saving. It gives them someplace to put money out of sight so they don’t spend it, and you should impress upon them that they are free to tap into it only to accomplish a goal that the both of you initially discuss. Again, as they make smarter decisions, let them have more responsibility. And this lesson shouldn’t just be about buying stuff – kids need to learn how money can be used for setting and accomplishing goals.
If it makes sense for you, you can also add incentives to save. One idea: Tell your son or daughter that you’ll give them $1 for every $5 or $10 they put in the bank. It will definitely make them think twice about an impulse purchase.
Budgeting: This is one of the most universally misunderstood money concepts for children and adults. That’s why it’s so important to make sure a child understands why it’s so important to write down money priorities and keep track of whether those priorities are being met. When a child gets a little older, it might be a good idea to help them establish a budget for common everyday expenses with an important side goal, such as accumulating spending money for a much-anticipated purchase. Parents might show kids a similar exercise for how they’re setting aside money for a major family purchase such as a big vacation.
For younger kids, it might make sense to turn the budgeting process into a game. Parents might take a stack of fake money, give it to the child and ask what they would spend it on. The child would write down each purpose – toys and special things they need to save for – and get them to write down how they’d allocate the cash. This can turn into a real exercise later.
Delayed gratification: If budgeting and savings are going to work, kids need to know they can’t spend their money whenever they feel like it. Parents need to lead by example here. If kids always see you paying with plastic and bringing home a big load of shopping bags each week from the mall, they might get a sense that money is limitless. On the other hand, if they see you making lists, tearing out coupons and talking about saving for particular goals over the long term – they might start to mimic, or at least understand that behavior.
Helping others: It’s important for children to know that there is always someone less fortunate than themselves and it’s important to help, even in a small way. Increasingly, kids are involved in charitable and community activities as part of their educational process. Teaching your children to set aside a little for those who have less might be a good first lesson in what should be a lifetime of sharing with others. Also, don’t forget that charity isn’t always about money. Kids should also learn the importance of giving their time and labor to important causes and people in need. And if they think of unique and effective ideas to help, by all means, praise and encourage that activity.