Teaching important financial lessons is crucial in raising independent and successful kids. While, three in four Americans admit to having taught themselves about finance, teaching your child about good money habits while they are young sets them up for success. Researchers from the University of Minnesota recommend focusing on five aspects in particular: saving, earning, spending, borrowing, and sharing. Here are simple ways to help your kids learn about these basics:
Open a junior savings account
Handling a bank account with no prior knowledge can be a struggle. Between learning the basics (deposits, balances, etc.) and keeping track of your own money, it’s genuinely something that you should have been taught earlier. Not only is a junior bank account an effective way to help kids become more financially responsible, linking their accounts to yours can help you monitor their expenses too.
Allow them to earn their own money.
Teach your child that they can earn their own money to buy the things they want. Family finance blog High Five Dad cites some fun activities kids can do to earn, like selling their crafts, walking dogs, or putting up a good old lemonade stand. Working to earn their own money is a basic concept, but it will later allow you to teach them about more complex topics such as investing, securing their money, and more.
Teach them how to budget.
Once they’ve started “earning” their own money, teach them how to allocate. Purchase goals, such as toys, can be helpful in convincing your kids to budget. For example, have them write down the things they want to save up for and how much they cost. For kids who have smartphones, why not have them download a few money apps like FamZoo to help them with the math?
Lend them cash.
Teaching your kids how to borrow money may not seem like you’re instilling responsible financial habits, but it’s necessary if they’re planning to loan or lend their own money in the future. If they really want something, and they haven’t saved enough for it, agree to shoulder some of the expenses under the condition that they eventually pay you back. Be firm, temporarily “stop” their allowance (or deduct payments from it) if you have to. Your kids need to know how restricting “debt” can really be and your family is a safe way to learn about it.
Stress the importance of sharing.
Once they’ve managed to learn the basics of financing, teach them how to share their money. They can donate to churches, charities, or even someone they know who needs the extra help. Eventually, they’ll see how giving doesn’t just affect the people they give to, but the giver as well.
Like all things parenting, teaching your kids how to handle expenses doesn’t happen overnight. They need to experience success as well as challenges as they navigate basic financing. Start early and let your child take the lead on what is interesting to them for the best results, and before you know it, you’ll have a finance expert on your hands.