No one is born with financial knowledge. It can take a lifetime to cultivate fiscally responsible habits, but teaching children how to set a budget, avoid debt, invest wisely, and save cash will help prepare them for financial success in the future.
Parents play important roles when it comes to helping children develop positive money habits. Here are a few simple ways to teach kids financially smart behaviors that will stick with them for life:
Set a Positive Example
Children are extremely observant. This means they can adopt both positive and negative habits just by watching the behavior of their parents and adult caretakers. This can work to a parent’s advantage if they are willing to take an honest, in-depth look at their own financial choices. Are you setting a positive financial example for your children? Are you showing them specific steps they can take to grow into fiscally responsible adults?
Teaching kids about money doesn’t have to be complicated. Parents can do this by using cash instead of credit, investing wisely, paying down student loans, refraining from impulse purchases, and paying all credit card balances in full each month. Children can easily observe these simple, teachable techniques without parents having to say a word.
Teach Children How to Use Cash
Using cash is a tangible way to teach kids the value of a dollar, which will help them understand the importance of avoiding debt in the future. When your children understand that they won’t have the ability to make purchases after spending all of their cash, they’ll look for ways to earn more or avoid spending what they already have.
Cash allowances can also help young people learn the difference between saving versus spending. Give them the opportunity to earn money by performing household chores such as folding laundry, washing dishes, cleaning the bathroom, vacuuming the floor, or unloading the dishwasher. This is a great way to help kids understand the reward of getting a job and earning an income, which will help them grow into financially savvy and hardworking adults.
Open Savings Accounts for Your Children
Setting up a child-friendly savings account is a great way to teach them the importance of setting money aside for large purchases or emergencies. Take your children to the bank regularly and show them how to perform basic financial tasks — how to make deposits or withdrawals with checking or savings accounts, how to set up debit or credit cards, and how to make monthly payments toward credit card balances.
Most banking organizations also offer virtual financial planning, savings and checking account monitoring, and retirement tools. Show your children how to use these resources and remind them to check them regularly. This will also teach them how to keep an eye out for any fraudulent activity, such as unverified charges or unauthorized third-party credit card purchases.
Establishing a strong financial foundation with your child is invaluable. As they mature, this knowledge can be built upon as parents encounter more opportunities to demonstrate money-positive behaviors. This can be done by explaining and walking through credit card applications, paying balances on time, or saving for college tuition and expenses. This simple preparation will ensure that kids learn to be fiscally savvy as they prepare to take on more responsibility.
Demonstrate the Importance of Saving
Let’s face it — it’s fun to spend money.
That’s why the average adult in the U.S. is carrying around $90,000 in debt. Many young people believe that if they see something they want, they deserve to have it immediately. Unfortunately, this type of spending can lead to negative consequences, such as a less-than-desirable credit score or the eventual inability to obtain a home or car loan in the future.
Teach your children the difference between necessary expenses and fun, gratuitous purchases. Show them the importance of putting money aside for unexpected emergencies and emphasize the importance of never spending more money than they have.
Remember to keep these discussions positive. Children are intuitive. They can sense when an adult has a negative or fearful attitude about money. Avoid using phrases like, “We don’t have the cash,” or, “We can’t afford that,” which may teach them to feel anxious about having financial talks.
Instead, show children the power of making responsible financial choices by using phrases like, “We choose not to spend our money on unnecessary expenses,” or, “We’re not going to buy that right now. We’re saving for something we really need.”
Include Your Children in Family Budget Discussions
Research from the Institute for Family Studies found that money is the second subject that’s most likely to lead to arguments among family members, right after chores and household duties. That’s why it’s imperative to have open, nonjudgmental talks about budgeting with your partner and children.
Allow your children to share their opinions on how certain budgets should be spent each month. Perhaps you have allotted a $400 monthly grocery budget. Ask your children how they believe that money should be spent and what types of food should be purchased. However, it’s important to remind them that the adults have the final say on the budget — while you value their opinions, the adults who earn the money will ultimately decide how it’s spent.
Talking to your children about money doesn’t have to be difficult. USALLIANCE can help make these lessons easier, whether it’s setting kids up with savings accounts or teaching them how to create budgets.