Children don’t understand the big financial issues, but why is that? We don’t teach them. Children learn quickly, and they can understand a lot more about finances at a young age than you might think. When your child asks you for something and you tell them they can’t have it, that you don’t have the money for it, or whatever excuse you may use, you might get asked to just swipe your card or go to the bank. If they don’t understand the value of money it will be hard for them to understand why you won’t buy them the expensive toy. When my son was younger he would see something on TV and say he wanted it. I would tell him I want a million dollars and he would pull pretend money out of his pocket. It was cute at the time, but looking back I’m realizing that there were ways I could have started teaching him (at the age of 3) more about the value of money. Here are a few ideas on how to start doing just that.
Toddlers
Children can understand the concept of more versus less. Introduce your children to money as soon as they can count. Have them help with simple tasks like sorting coins. Sort them into piles and have them tell you which pile has more, and which has less. This is a basic thing to teach, but as they get older you can work in that value of coins and which ones are worth more, and which are worth less. When they are at the store with you let them read price tags, point out when things are on sale and explain to them how when things cost less you have money for other things or can put that money towards savings. You can also start teaching them where money comes from and that you have to work for it. When my son would ask every day “where are you going?” I would tell him I had to go to work and he would ask why. I explained to him that it’s how we make money to be able to do things and have things, like cheeseburgers. He loved cheeseburgers, and knowing that I worked hard to be able to have a supply of them made him so happy. Put it into a perspective they can understand.
Delayed Gratification
Teach your young ones about delayed gratification. When you go to a store, tell them that you are there to look but not to buy, or that you are “just looking.” Your children will learn to not feel deprived, but to look forward to “special” occasions, like birthdays and so on. Teaching kids the concept of delayed gratification can also help in combating the “buy now, pay later” mentality that can lead to credit card debt.
Older Children
When kids are in third or fourth grade they are ready to discuss more complex money matters such as budgeting and planning out how to save for an upcoming family vacation or big purchase. As your children get even older you can start to talk about how their choices affect family finances. For instance, when your children leave the lights on in a room unnecessarily, you can explain how it makes the family electricity bill more expensive. Don’t do this to make them feel guilty, but to teach them that simple choices can have a big impact on spending or saving money.
Working for Their Money
Encourage your child to earn their money by working. Show them they can do chores around the house to get an allowance. You can also sit with your children and help them make a list of jobs they can do. Help them offer to do those jobs for others: mow the lawn, rake leaves, shovel snow, open a lemonade stand, baby-sitting, the list can go on forever. Creating or helping your child find opportunities like this to earn money with jobs that are interesting to them is a great way to teach the value of hard work. It also helps eliminate the notion that they are entitled to get whatever they want.
Buying What They Want
The next big step is letting them make the decisions about how their money is going to be spent. It’s important to give your kids the power to decide what they want to buy with their money because it can help them understand the need for saving money. Your children might pick out items that are priced higher than they can afford. Instead of coming to your kids’ rescue by providing additional cash, help them understand that because they don’t have enough money, they will have to wait until they have saved up for the item they desire. Otherwise, they can choose a less expensive item within their budget.
Wants vs. Needs
Another lesson to teach is understanding want vs. need. Understanding this early on will help them to make smarter buying decisions when they get older. For example, when you’re with your children at the store and they see a toy that they want that costs $35, talk to them about what else $35 will buy. Give your children an idea of what things at home cost. Would you rather have the toy, or would you rather have a ticket to the zoo or go to the movies, or even a bag of groceries? The more familiar they are with how much things cost, they more they are able to judge what has greater value to them and what they can live without.
Money Management Skills
Teaching your children to track their finances will help teach them to be mindful of how much they are saving and spending each month and make budgeting a breeze in the future. Have your children use a spreadsheet or notebook to keep track of where their money goes each month. They can monitor how much they spend and on what, as well as how much they have saved up for big-ticket items and toward their saving goals. Before teenagers head off to college they need to learn about credit cards and budgeting to help them avoid credit card debt problems. College students often start getting preapproved credit card applications by email and mail. Educate your kids about how these cards work before that happens. Important points to discuss include how you pay your bill, what happens if you don’t pay, credit scores and how it effects them throughout their life, and what to do if you lose your credit card.
With these simple activities, every parent can help create a solid financial foundation and teach their children good personal finance habits so they can grow into money-mindful adults. The key is starting young and keeping it at their individual level.
