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As a parent……
you want the best for your children. I mean, what parent doesn’t, right?
Now this doesn’t necessarily mean they have the most expensive clothes or the latest gadgets.
However, it does mean that you want them to have the tools and foundation to be a productive member of society, the leadership to raise their family and have a happy life, and good values to pass onto their children.
One value that often gets overlooked is teaching your kids about money.
Maybe it’s because their parents never taught them.
Maybe it’s because they assumed their kids will learn on their own.
Maybe it’s because they are not good with finances themselves.
Whatever the reason, parents, in general, do not teach their kids about money.
And the problem is widespread.
According to T. Rowe Price’s 11th Annual Parents, Kids, & Money survey, nearly half of the parents stated they miss opportunities to talk to their kids about money and a quarter are very reluctant to discuss financial topics with children.
If you want to change your child’s financial future, then today’s article is for you!
Why It’s Important To Teach Kids About Money
Do you want your kids to do better than you financially?
Want them to be able to create and stick to a budget?
Financial education is the key.
Teaching kids about money is one of the gazillion jobs a good parent has.
If you don’t, I can almost guarantee that they will learn the hard way from someone taking advantage of their lack of financial literacy.
Teaching kids about money when they are young will lay the foundation for being great at money management.
Children whose parents taught them money management skills and financial literacy develop a much healthier perspective on money that those that don’t.
Don’t believe me?
Researchers from the University of Wisconsin-Madison studied the behaviors and attitudes of 4th and 5th graders who were exposed to learning money management and overall financial literacy. They concluded that these students could learn personal finance at an early age and learning it can lead improved attitudes and behaviors towards money.
Also according to this University of Cambridge report, children as early as age 7 start to develop a limited understanding relating to money, spending, financial habits, and financial concepts. They also start to develop financial behaviors based on what they see and observe in their environment.
This includes watching their parents’ interaction and relationship with money.
Now before you freak out and start panicking that you have already ruined your children for life (i.e. like my wife…. Love you honey! Lol 😊), calm down because all is not lost….far from it.
On the contrary, it’s never too late to teach your kids about money.
We have been slowly integrating financial behaviors including saving, budgeting, and long-term planning for a little over a year now with our 10-year-old girls.
We already see their financial habits getting better every day.
So don’t worry, if my kids can catch up yours can too.
The purpose of this section is to illustrate the following:
- Kids learn a lot more than you think by watching their parents.
- Kids pick up on things like a sponge and it’s never too late to educate them.
- Be wary of the habits you portray in front of them because they may start to imitate you, either good or bad.
The question you may be asking yourself is, “Where do I start?”
If so, then read on because we’ll cover that next!
5 Hacks For Teaching Your Kids About Money
I designed these 5 hacks to be universal no matter a child’s age. These 5 things are foundational pieces for developing sound financial habits that will last a lifetime and can be started no matter if your child is 6 or 16.
Here goes…..
Teach Your Kids How To Save
Your child’s early interaction with money will likely involve spending. They see you buy things, so they want to buy things too. It’s natural.
What your child may not see you do, and should see, is saving.
No matter a child’s age, teaching them how to save will benefits them for their entire life. While saving alone will never make you wealthy (need to invest it!), savings is the engine that used to build wealth and drives your financial life.
The more you save and wisely invest, the easier your road to wealth and financial freedom.
Saving money also teaches:
- Prioritization
- Delay Gratification
- Discipline
- Living Within Your Means
That is why it is SO important to teach your child how to save.
If struggling with how to get your kids on the right path, then start with the basics.
We started teaching our 10-year-old girls about money by using both a piggy bank and a savings account.
Here is how we do it.
Each girl has 3 piggy banks: spending, college fund, and charity.
Each pay period, they receive their allowance and divide it up as follows:
- Spending – 50%
- College – 40%
- Charity – 10%
I pay them in cash and help to divide out the money into its buckets. This gives them a great visual anytime they want to know how much they receive from each pay period.
About every 4 months, I take them to the bank, and THEY deposit their college fund money into their bank account.
About every 4 months, they also donate to their favorite charity. They actually hand the people their donation.
That is important because they need to take the action so it is reinforced as a consistent habit.
What if they want a big gift?
They have 3 choices: save up for it, do extra jobs around the house/neighborhood, or both.
This teaches them delayed gratification and prioritization. If they want it bad enough, they will figure out a way to earn it.
Do they ever dip in the college fund and pay it back later?
Never, never, NEVER is that allowed. Once you open Pandora’s Box, you’ll never close it, and they will continue that habit for the rest of their life.
So far, it has been working great! They are both great little savers and are always looking for ways to earn more money.
Last week it snowed where I lived and at the time of this writing. The girls wanted to shovel snow and play in it.
About 2 hours later they came back with wads of money in their pockets inside the box they took.
Those two decided to go door-to-door to offer to shovel people’s snow and negotiated a price at each house. They each made over $20!
My little entrepreneurs in the making! Lol 😊
Teach Your Kids About Opportunity Cost
Another great lesson to teach your kids is about opportunity cost and choices.
For those not familiar with opportunity cost, it is the opportunities lost from other alternatives when one alternative is chosen.
For example, let’s say I decided to spend $50 to buy a video game instead of wipers for my car or new pair of sneakers.
The opportunity cost is that I will not have good wipers for seeing out of my car and my feet will continue to hurt when I go out on a walk.
Same things for your kids.
The benefits of teaching your kids about opportunity cost is that it should deter impulse buying and teach them about choices, prioritization, and delayed gratification.
It will also help to explain to your child the difference between needs and wants.
A great example happened the other day when I took my kids to the dollar store.
One of my girls wanted candy AND a toy but could not afford both.
So she had to make a choice. She weighed the choice of buying candy (where she still had a grocery bag full of it at home from Halloween) and a toy (where she has a lot at home but did not have THIS toy).
In the end, the toy won out because she felt she didn’t need the candy as much as a toy.
Then, we went to a local Wal-Mart to learn about needs and wants.
As we went shopping for groceries, I explained to her that while I would love a candy bar, I only had enough for gluten-free pasta, and we needed to have the pasta for tonight’s dinner.
So guess what won out? The pasta.
Teaching about opportunity cost also teaches kids that spending isn’t all about what you want, it’s also to buy things you need.
Choices have repercussions and most young kids don’t think past their nose.
Teaching them this lesson also helps to show them that the choices we make affects not only yourself but others too.
Model Good Financial Behavior
Just as important as the lesson you are teaching your kids about money is how you emulate your spending habits when around them.
For example, do you tell your kids to never use credit card to buy things and then use a credit card to pay for everything?
Do you complain to them about how much money they are wasting on stuff they don’t need and then take your kids on a shopping spree?
If so, you are sending mixed messages to them. Odds on, they will follow what you do NOT what you say.
What to do instead?
Model the behaviors you want them to learn and adopt.
If you want your children to develop good spending and savings habits, then they need to see you model those behaviors.
In short, practicing what you preach will go a long way towards making sure that your child has the financial skills needed to fend more themselves.
The alternative is they will live in your basement until they are 50 and spend their money on frivolous things.
Who wants that, right? 😊
Teach Them How To Create And Stick To A Budget
If there is only one skill you were able to successfully teach, it would be the ability to create and stick to a budget.
Doing this, enables teaching a child how to create and carry out a plan.
It teaches them delayed gratification, prioritization, and understanding needs vs wants.
Depending on your child’s age, they do not necessarily need a written budget.
However, they do need to know how to set one up and stick to it.
For example, my daughters have a budget, but it’s not written down.
Back to the above example, each girls gets $5 every 2 weeks to spend any way they choose. One of my daughters takes the $5 and has me hang onto $2 to save towards games for a Nintendo switch, she budgets $1 for candy, and the remining $2 on whatever she feels like.
While she does not have a written budget (she keeps track in her head), my daughters prioritize their spending and stick to it.
However, if you child would work better with a written budget, then by all means do it.
You could either help them create one on a piece of paper and stick it to their bedroom wall or you could use a simple budgeting app like FamZoo or Greenlight to do it for them.
However, you choose to do it, teaching your child budgeting skills now while under your roof is WAY easier than when they are in college struggling to live and foolishly spend their semester book budget on beer at the bar (true story of a fraternity brother of mine!…….he needed to learn how to budget! Lol 😊).
Teach Them How To Produce
A lesson taught by Garrett Gunderson is that money is simply a means to make an exchange.
We could trade apples for plumbing services as “currency” and it would result in the same thing: an exchange or transaction.
Know what money is also a measure of?
It is a measure of perceived value and how much people produce.
For example, there is a reason a manager makes more money than a non-management employee……. they have more responsibility and can do more things to affect greater change in the company.
In other words, it’s a measure of production and perceived value
If your company values your services more, they pay you more…. it’s that simple.
While you may initially feel down about this, there is an upside.
Each and every person has the potential for limitless production and therefore limitless earning potential.
Teaching your child about production also teaches them an abundance mindset. This mindset believes that there is enough money for everyone, it’s just our responsibility to tap into it.
My kids are learning this lesson.
Last summer, they wanted to earn extra money so they setup a lemonade stand.
They created fliers and hung them around the neighborhood. They made lemonade and baked brownies. They even setup a stand and knocked door-to-door advertising their stand.
What came out of this?
In one afternoon they earned over $60! This is a lot for selling $0.50 lemonade!
Know what they learned that day? They can make as much money as they want so long as they put their mind to it.
If my kids can do it, yours can too. 😊
Parting Notes
Teaching kids about money when they’re young lays the foundation for responsible financial management later on in life.
Learning how to handle money is also a lifelong process. However, the earlier they start the better off they will be.
By teaching them the following things listed below you can get your child started on the right foot:
- Teach Them How To Save
- Teach Them Opportunity Cost
- Modeling Good Financial Behavior
- Teach Them How To Create And Stick To A Budget
- Teach Them How To Produce
And who doesn’t want their child to be their very best, am I right?
Until next time……
Live The Life You Love, Want, And Deserve! 😊
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