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15 Ways to Teach Kids About Money

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You may not realize it, but teaching your children about personal finance and managing money can have a far greater impact on their future financial success than any investment decisions they’ll ever make.

I see a lot of young adults wading into investing without any sort of basic financial skills and I think it’s a recipe for disaster. Because it’s not “sexy”, emphasis has shifted away from teaching basic financial skills such as budgeting and planning.

Having a sound financial foundation that includes understanding credit card debt, managing spending, and saving for the future is key to any successful investment decisions your kids may make in the future.

Here are 15 simple ways to teach kids about money and educate them on personal finance.

1. As soon as children can count, introduce them to money. 

Too many children grow up without a basic understanding of money and its value. This can lead to problems later in life when they have to budget, make financial decisions, or manage their finances. To avoid this, it’s important to introduce children to money as soon as they can count.

This is a great way to help them understand the value of financial planning and managing money.

Remember that children are little sponges. They absorb information much better when they’re actively involved in the process and repetition will help them internalize what you’re teaching them.

2. Communicate with children as they grow about your values concerning money.

As your children grow, it’s important to have ongoing conversations with them about your family’s values around money. You can do this in several ways, but some of the most popular include allowance charts, responsible spending games, and talking about finances in age-appropriate terms.

These interactions will help them understand your values. Your children will likely form their own opinions about money based on their experiences and observations, but by sharing your values with them, you can help them to develop a more well-rounded perspective.

Be honest: Share your own experiences with money, both good and bad. They will understand that everyone makes mistakes and that it’s okay to ask for help when needed.

Encourage questions: Encourage your children to ask questions about money and explain things in age-appropriate ways. They will feel comfortable discussing money matters with you.

Set a good example: Help your children learn by example. If you believe that money should be saved rather than spent, you can explain your reasoning to your children and share tips for saving money. Similarly, if you believe that it’s important to give money to charity, you can talk about why this is important to you and how your family supports different causes.

3. Help children learn the differences between needs, wants, and wishes.

As parents, we want to give our children everything they need, but it’s important to teach them the difference between needs, wants, and wishes. Needs are things that are essential for survival, such as food, clothing, and a place to live. Wants are things that we would like to have, but that we can live without.

For example, a brand-new gaming system or designer clothing. Wishes are things that we hope for but probably won’t get. For example, a child might wish for a pony or for a pool in the backyard.

Teaching this difference is important because it can help them to understand how to budget their money and make responsible decisions. Children who grew up knowing the difference between these three concepts are better equipped to make wise choices about how to spend their money.

Additionally, this knowledge can them be more grateful for what they have: they’ll realize that they may get their wants and wishes on occasion, but that they are not entitled to everything they see.

This is one of the best ways that to set them up for success in life as responsible adults.

4. Teach your children to save a portion of their allowance.

One of the best ways to teach your children the value of money is to have them save a portion of their allowance. When you are setting up their allowance, make sure to include a savings goal. For example, you might recommend that they save 10% of their allowance each week. You can also help them by providing a piggy bank or other safe place to store their money.

Don’t put too much pressure on them. They should feel like they’re in control of their finances, and they shouldn’t be punished if they don’t reach their savings goal. Instead, focus on the positive aspects of saving and help them to see how satisfying it can be.

Set a good example (again!). If your children see you making an effort to save, they’re more likely to follow suit.

Remember that this is just one of many building blocks. As your children get older, you can introduce more complex concepts like investing and budgeting. For now, though, simply focus on helping them understand the importance of putting away some money each week.

5. Setting goals is fundamental to learning the value of money and saving.

One fundamental truth, regardless of age, is that people rarely reach goals they haven’t set. Nearly every toy or other item your children ask for can become the object of a goal-setting session.

In a world where credit is easily accessible and instant gratification is the norm, it’s more important than ever to teach kids the importance of saving. One of the best ways to do this is by helping them to set goals.

As they watch their savings grow, they will be more motivated to save even more. And when they eventually reach their goal, they can use the money for a special purchase or treat. Whether it’s saving up for a new toy or opening a savings account for college, setting goals gives kids a concrete reason to start saving.

This can be one of the most important lessons they’ll ever need to know.

6. Introduce children to the value of saving versus spending.

Your children must understand that money does not grow on trees, and that every purchase means you’re choosing NOT to buy something else (opportunity cost). For example, if they spend their allowance on a new toy, they won’t have any money left over for ice cream later.

Teaching kids the value of delayed gratification can help them to make wiser choices with their money as they get older. Explain that saving up for something larger may take longer, but it will be worth it in the end.

You can also encourage them to open a savings account and make regular deposits. This will give them tangible goals to work towards and instill the importance of saving for the future.

And when they do make a purchase, help them understand the difference between quality versus quantity. A few well-chosen items will last longer and provide more enjoyment than a bunch of cheap junk.

Explain and demonstrate the concept of earning interest income on savings. Consider paying interest on money that children save at home; teach them how to calculate the interest and see how fast money accumulates through the power of compound interest. Some parents even offer to match what children save on their own.

7. Take children to a credit union or bank to open their own savings accounts.

Opening their own savings accounts helps children better understand how money works and how interest can grow their savings over time. Additionally, it can instill the importance of financial responsibility at an early age. Plus, it’s a great opportunity to teach them about interest rates in the real world and how compound interest can help their money grow.

When choosing a credit union or bank, be sure to look for one that offers child-friendly services and products, such as savings account bonuses for kids who maintain good grades in school.

Beginning the regular savings habit early is one of the keys to savings success.

Finally, don’t refuse them when they want to withdraw a portion of their savings for a purchase. This may discourage them from saving at all.

8. Keeping good records of how money is used.

Many parents teach their children the envelope system for budgeting allowance money. With this system, each spending category gets its envelope. When it’s time to spend money in that category, the child can take the envelope out and count the cash inside.

This is a great visual way to help children understand that once the money in an envelope is gone, they have to wait until they receive more money to spend in that category again. It also teaches them to be mindful of their spending and not overspend in one area just because they have money left over in another envelope.

There are several apps available that can help children (and adults) keep track of their spending using the envelope system. Most of these apps allow you to create virtual envelopes for each spending category and track your balance as you spend.

9. Use regular shopping trips as opportunities to teach children the value of money.

Going to the grocery store is often a child’s first spending experience. For a typical family, about a third of take-home pay is spent on groceries and household items.

When children are old enough to understand, involve them in the grocery shopping process and explain how you budget for the items you need. Help them to understand that you can’t always buy everything you want and that some items cost more than others. We can save money by looking for sales and comparing prices.

To help young people understand this lesson, demonstrate how to plan economical meals, be frugal with gift shopping, avoid waste, and use leftovers efficiently.

When you take children to other kinds of stores, explain how to plan purchases and make unit-price comparisons. Spending money can be fun and very productive when spending is well-planned.

10. Allow young people to make spending decisions.

Whether good or poor, they will learn from their spending choices. You can then initiate an open discussion of spending pros and cons before more spending takes place. Encourage them to use common sense when buying. This means doing some research before making major purchases, waiting for the right time to buy, and using the “spending-by-choice” technique. This technique involves selecting at least three other things the money could be spent on setting aside money for one of the items and then making a choice of which item to purchase.

When young people are allowed to make spending decisions, they learn how to budget and save. For example, if a child is allowed to choose how to spend their allowance, they will quickly learn that they need to be responsible with their money. They will also learn the value of saving for future purchases.

In addition, by allowing them to make some mistakes with small purchases, adults can help children learn how to manage their money more effectively.

11. Show children how to evaluate TV, radio, and print ads for products.

  • Will a product perform and do what the commercials say?
  • Is a price offered truly a sale price?
  • Are alternative products available that will do a better job, perhaps for less cost, or offer better value?

Ads are designed to be persuasive, and children typically do not have the critical thinking skills to evaluate them objectively.

Children are constantly bombarded with advertising. As a result, they need to learn how to evaluate ads before they make a purchase.

One way to do this is to teach them to question the claims that are made in the ad. For example, if an ad says that a certain toy is the “best ever,” ask your child if that’s really true. Or if an ad says that a product is “guaranteed to work,” find out together what the guarantee covers.

By teaching children to question the claims made in ads, you’ll help them to develop a healthy skepticism of marketing messages.

You should also encourage children to think about who created the ad and why. Help them to understand that businesses want to sell products, so their ads may not always give an unbiased view of the product.

Remind them that if something sounds too good to be true, it usually is.

12. Alert children to the dangers of borrowing and paying interest.

When your children turn into young adults, they will be bombarded with offers of credit and loans. It can be tough for them to resist the temptation of borrowing money, especially when they see all of the things that they could buy with it.

Shielding them against this starts when they’re young, so they understand the dangers of taking on debt. They may not realize that they will have to pay back the money that they borrow, plus interest. As a result, they can easily find themselves in over their heads.

Educate your children about the dangers of borrowing and paying interest. Explain to them how it can snowball and lead to financial problems down the road. Help them understand that it’s better to save up and purchase things outright if possible.

If you charge interest on small loans you make to them, they will learn quickly how expensive it is to rent someone else’s money for a specified period.

13. Teach children how credit cards work.

Credit cards are a popular way to pay for purchases, but they can also be confusing and even intimidating for some people, especially children. They may think it’s free money. Here is what you need to teach them:

When they use a credit card to make a purchase, they are borrowing money from the credit card company. They will then need to pay back the money they borrowed, plus interest and fees. The interest is the cost of borrowing money, and it is calculated based on the amount of money they borrowed, the length of time they borrow it, and the interest rate. The fees can be things like an annual fee, a late payment fee, or a cash advance fee.

They need to repay the money they borrow plus interest and fees. If they only make the minimum payment each month, it will take them longer to repay the debt and they will end up paying more in interest and fees. That’s why it’s important to try to pay off their credit card balance in full each month if possible.

This is where earlier lessons about savings and delayed gratification come full circle!

14. Be cautious with credit cards when going off to college.

Credit cards have a message: “spend!” Some students report using the cards for cash advances and also to meet everyday needs, instead of for emergencies (as originally planned). Many of those same students find themselves having to cut back on classes to fit in part-time jobs just to pay for their credit card purchases.

15. Establish a regular schedule for family discussions about finances.

This is especially helpful to younger children: it can be the time when they total their savings and receive interest. Other discussion topics should include the difference between cash, checks, and credit cards; wise spending habits; how to avoid the use of credit; and the advantages of saving and investment growth. With teenagers, it’s also useful to discuss what’s happening with the national and local economies, how to save (and maybe even invest), and alternatives to spending money. All of this information will be important as they take on more responsibility for their financial well-being.

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