How to Teach your Children about Money:
As parents, we continually struggle to pass knowledge to our children. Unfortunately, sometimes financial knowledge is left off the list or lost in translation. Below are 5 tips to teaching your children about money:
- It is never too early to start
Just like saving for retirement, the earlier you start educating your children about money, the better off they will be. You should start with early lessons around earning and spending. Show kids that they can do a job and be rewarded by with their own money and give them examples of how much the earned money will allow them to buy. This puts into perspective how much things cost and the amount of work needed to afford something they want.
- Understand the Save, Share, Spend mentality
For every dollar earned, either through allowance, babysitting, or other jobs, teach the idea that there should be three buckets for the money- the amount you want to save for the future, the amount you want to share with others and the amount that is left over to spend. This will enforce the idea that it is important to save for something special and give back to others in need instead of spending whatever makes its way into their pocket.
- Be smart about debt
There is an opportunity cost with every decision. If you spend now, you have less to spend later. If you spend more than you have, you will incur debt. So, if you take on debt, first your future earnings will be reduced by the amount needed to pay off prior purchases and second you will pay additional amounts above the original amount through interest. It is better to wait and save for that special purchase than jeopardize your future income stream.
- Teach goal setting and budgeting
Help kids understand how to budget and set goals around spending. There is not a better reward than setting a goal financially- whether that is to buy an important toy, go on a special trip or buy that first car. There is value in setting the goal, watching the money accumulate and realizing the success you have accomplished with that special purchase.
- Take away the taboo of talking about money
Money is a very taboo subject. People don’t want friends or family to know how much you make or what you spend it on. Change this trend by sharing information with your kids about your individual situation in regards to money. Talk through the various decision making process that happen when you decide how to spend, save or share your money. Tell them the lessons you have learned, including the mistakes that you have made along the way.
Click here to view my interview with KVUE on this topic.