Teaching kids positive financial habits gives them the background they need to become smart consumers who will be able to make sound financial choices throughout their lives. If given the right education and resources during the early years, young consumers learn important financial principles, such as budgeting, saving, and goal-setting. Armed with these core values, they can progress towards proper use of credit, homeownership, retirement savings and overall financial stability.
However, without the right foundation of financial education, young consumers are left to fend for themselves—and often make poor choices. With no budgeting, saving or goal-setting discipline in place, they may rely solely on credit cards, and accrue debt rapidly. Many end up making minimum or late payments, or missing payments altogether, devaluing their credit standing for future purchases like vehicles and real estate. Any money they may want to dedicate to retirement savings is instead used to try to repay their accumulating debt—it becomes a vicious cycle hard to escape.
That’s why teaching kids positive habits from the start is so important. Here are some ways you can educate the children in your life about money management, all while having fun and keeping them interested.
1.Teach them the value of money. This basic but all-important principle provides the basis for all other financial matters. Because so much is provided to kids directly by their parents or guardians, like food, shelter, and clothing, it’s easy for kids to think that these and other life essentials are “free.” A good way to show them that most things do come at a cost is to let kids earn an allowance for completing a set of chores: washing dishes, taking out the trash, taking care of pets, etc. As their first “job,” performing these tasks will show them the concept of getting paid for doing work. But be sure to follow it up with the next two steps, paying bills and budgeting, and setting goals, so they can see how money is designated to particular needs.
2.Show them how you pay bills and manage your budget. Whether you pay your bills online or by mail, take time to sit down with the kids and show them how the process works. This will demonstrate to them the idea that running a household takes money. Let them help you add up a month’s worth of bills using the computer or a calculator, and show them how you write the checks and record them your check register—or how you input the payments online—and also make sure to explain your monthly household budget so they can see where the money goes.
3.Have them set financial goals for themselves. Have the kids choose goals to save for, with money from their allowance or any other income they may receive, such as from a paper route or cash gifts from relatives for birthdays. Depending on the age of the child, you may want to have them open a first savings account—which is another excellent tool for teaching money management. If they do open accounts, let them manage and record their deposits (with your help as needed) and they’ll see how their savings can compound over time.
By showing children these essential money management tasks, you’ll be teaching them the basics of financial responsibility—lessons they’ll use for the rest of their lives!
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