Ah, money. Dough. Brass. Moolah. While essential for everyday life, managing finances can be a daunting task for anyone, let alone a child. That’s why teaching kids about money early on is so important. By instilling good financial habits from a young age, we can equip them with the tools they need to thrive.
However, turning abstract concepts like saving and investing into engaging lessons can be a challenge. How can we spark kids’ interest in money and help them develop a solid financial foundation? The good news is, it’s entirely possible. Let’s explore practical steps to help your child become money-savvy.
6 steps to teaching kids about money
1. Encourage them to set savings goals
The concept of “saving up” can be challenging for young children to grasp and quantify. They may not fully understand its benefits, especially if they’re simply accumulating their allowances and gift money without much thought. But it is a key part of teaching kids about money.
Rather than pushing them to accumulate their funds, try to make the act of saving more tangible and exciting by giving them a goal to work towards. For instance, you can have them save up for a new toy, a trip to an amusement park, or something practical like the new sneakers they want.
The best types of goals to set are SMART goals. These are objectives that are specific, measurable, achievable, relevant, and time-bound. Working towards these goals requires your child to become diligent and disciplined. Your guidance may be needed to help them stay committed to achieving the long-term goal. Sitting down with them and having them define a goal using the SMART structure gives them clarity in what they’re working towards. This makes saving more rewarding and motivational for them.
In short, get your kids to start saving money by teaching them the right frame of mind when approaching finances.
2. Introduce a savings account
Giving your child a savings account can help them develop greater financial literacy early on. They can also experience various banking processes, such as making deposits, withdrawals, and accruing interest.
Most importantly, having them own a savings account also gives them a storage solution for their money. This can help them maintain their capital without being tempted to spend due to easy and immediate physical access.
Some savings accounts are specifically made for dependents and minors, so just browse around available options and choose the one that’s most convenient and respected in your community. Ideally, you should pick a savings account with little fees and an easy-to-access app to streamline banking processes.
It’s also important to educate your child about the processes by bringing them to a physical bank branch. This way, they can learn the processes of depositing money first-hand.
3. Let them create a budget
A crucial money rule that you should instil in your teen or child is to have and maintain a budget. Teaching your child how to create a budget allows them to exercise greater control over their finances. It allows them to track their cash inflows and outflows, as well as their net worth.
This, in turn, helps shape their financial behaviour, such as whether to tighten spending or to allocate funds into different categories.
To create a budget, encourage them to track and list their sources of income, whether it’s allowances or earnings from chores. Then, tell them to list their expenses, such as transportation costs and food costs.
Have them subtract their income from their expenses. The resulting figure shows their budget balance, which can give them an idea of how well they’re doing financially and whether their actions align with their overarching goals.
Creating a budget can be done through spreadsheet software like GSheets or financial tracking apps. It can also be as simple or as complex as they desire. Feel free to allow your teen to use either option, whichever is most convenient and fitting for their needs.
Remember, a budget is only useful if the information is relevant and timely, so encourage your child to constantly update the budget tracker. In doing so, they can set themselves up for a life of financial prosperity.
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4. Pay them for chores
While you don’t want to deprive your child of their needs and wants, you don’t want to spoil them either. One way to teach them the realities of life and teaching kids about money is by enforcing age-appropriate chores into their routine.
Getting them to do chores helps teach them the value of responsibility and a good work ethic. It tells them that life isn’t always going to be smooth sailing; they need to work to achieve their goals, like a clean house or a satisfied parent.
One way to motivate them to complete their chores is to pay them for accomplishing certain tasks. You can pay them after completing each task, giving them a boost of motivation and happiness to finish their work. And your child will understand discipline and have a more realistic and valuable view towards money.
5. Go shopping together
step to teaching kids about money is by actively shopping together. Consider bringing them to a supermarket and having them complete the task of putting items from a shopping list into a cart without the items exceeding a total budget.
This task will also improve their maths skills and help them make conscious choices about the best way to allocate money. They may have to re-prioritise certain items in the shopping list or choose alternative options to fit the budget.
Of course, as a parent, you should guide your child along the way and teach them how to choose the highest-priority items in the store. Be patient in your approach and allow them into your thought process from time to time. This will give them the confidence to make decisions on their own while also ensuring that they practise healthy financial habits.
6. Be a role model to them
One of the most impactful steps to teaching kids about money is to reinforce your words through action.
Children are very observant of the actions and behaviours of people close to them, most especially their parents. As such, you must demonstrate good financial practices whenever your loved ones are in your vicinity (or, better yet, in general).
For instance, when discussing the concept and importance of budgeting with your child, reinforce your words by showing them your own up-to-date budget tracker.
If you’re talking about setting financial goals, then let them in on your own personal and family goals, like saving up for a house or for a family vacation.
By setting a positive example, your teachings will be more solidified in your child, and they’ll be more likely to adopt a healthy attitude towards money. This, in turn, can make them become more financially responsible throughout their lives.
What are your tips for teaching kids about money? Let us know!
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