Children learn about money from an early age. According to a study, by age 7, most children understand the value of money, the basic idea of delayed gratification, and the possibility that their decisions may have negative consequences.
When educating your children about money, it is better to start early. But it is also no secret that doing so might be more challenging than others think. While some parents lack the resources and knowledge to educate their children about financial literacy, others believe it is wrong to teach children about finances because they are still too young to understand it.
However, the more you teach children about money, the greater the long-term benefits will be. Below, we’ve compiled ways to teach kids about money to foster financial wellness in the next generation.
Our relationship with money and overall well-being can significantly impact our lives. We provide our children with the self-assurance, expertise, and abilities to manage their money wisely by educating them about money. Children must master the crucial skill of effective money management to succeed and achieve financial freedom in the future.
The best first step is to give your child an allowance, particularly if you tie some of it to tasks that instill responsibility. Kids learn the value of money and how to make decisions when earning an allowance. Kids frequently discover that when they have money, children make different decisions than if they had someone else’s.
Your children will eventually want things that exceed their allowance. You are teaching kids about delayed gratification and trade-offs by encouraging children to put money aside for those things. Establish a habit of saving a tiny percentage of every cash they receive, including allowance and gifts.
Whether they swipe a card or count out cash, kids need to learn how to pay for things with money. You may help children develop their financial literacy and understand how to pay for stuff by demonstrating how to complete a transaction. To help your kids grasp the value of a purchase, walk them through paying for an item and let them spend cash in the store.
Our studies have shown that young adults with jobs are more likely to be long-term better savers. Ensure your kids save money from each payday and might even need to ask them to help with other bills. It is acceptable to require that children pay for their gas and movie tickets.
Discuss with your kids the difference between wanting something, such as a new pair of shoes or an ice cream, and requiring something, such as food and a place to live. It might serve as the starting point for discussions on budgeting and aiding their comprehension of spending decisions: if we decide to buy something, we might have to give up something else. It is also related to the connection between employment and income.
Once your children have some savings, you might consider setting up a custodial brokerage account or assisting them in buying fractional shares. Your kids can learn the value of conducting research and maintaining their possessions, aside from developing a sense of ownership. Remember that custodial accounts could have specific tax implications, so it’s always advisable to check with an advisor to ensure they suit your case.
Let them pick a few stocks to buy. Afterward, schedule frequent meetings to evaluate their performance. Teaching kids about the fundamentals of saving and investing can pave the way for a future where they understand complex financial concepts, such as private equity, and make informed decisions about their money.
Enrolling your child as an authorized user on one of your credit cards might be helpful when teenagers become more independent. Practically speaking, having a credit card on hand to handle situations like emergency expenses is a good idea. What’s more, if you make your child pay back everything they borrow, they’ll learn to live within their means.
It is also the best time to introduce how essential credit responsibility is. If you accept responsibility for repaying borrowed funds, lenders are more likely to have faith in you the next time you need to make a significant purchase.
Educate your children on the importance of investment and its long-term benefits. Thousands of inexpensive index funds are available, which can confuse a beginner. When in doubt, the best action may be to select a product that allocates and invests their money on their behalf.
A target-date fund is one option whose asset allocation mix grows more conservative as the target date gets closer. A robo-adviser is another option that constructs, monitors and rebalances an investor’s diversified portfolio of exchange-traded funds.
While you want your children to be totally independent adults, there may be occasions when you need to intervene to keep them on course. After all, learning a lesson about bad financial decisions can be costly.
Introduce them to your financial advisors if they have a question you can’t resolve. If they need assistance, you want them to practice asking others for help aside from you. Even experts ask for help sometimes.
While teaching children about money can be a little scary, the benefits for you and your child will surpass any potential frustrations. Fortunately, tools are available to parents more than ever, including real-life scenarios, discussions, and applications.
The most crucial thing is to emphasize the necessity of smart money management and provide your children the chance to put these skills into practice in their daily lives.