Why is it that one of the most important life skills people need—financial expertise—isn’t taught in schools? Whatever the reason, if you have children it’s up to you to give them the money management skills that will serve them the rest of their lives.
But because you probably didn’t have that when you were growing up, you may not know where to begin. So Billshark would like to offer the following suggestions to help your kids get off to a solid financial start in life.
As soon as they’re old enough to know not to eat coins, use them to teach counting skills. Show how many pennies make up a nickel, and so on. Later you can move on to addition and subtraction, showing how quickly coins can add up. Not to mention how quickly they disappear when you buy something with them. The idea is to get them familiar at an early age with the concepts of accumulating, saving, and spending.
Expand the lessons
When they’re old enough to have grasped basic concepts about money, reinforce them at every opportunity. Play games like Monopoly, take them shopping with you and show them that the things you buy at the store cost money. And that the money in your wallet isn’t unlimited. Teach them how you must make choices based on the money you have.
Give an allowance
Once they’ve grasped the concept of how money works, give them an allowance. Explain what their money is to be used for, and detail the chores they’re expected to perform in return. Also, explain that this is what they’ll encounter when they’re old enough to have a paying job.
Once they have their own money in hand is the time to teach them the concept of budgeting. They have X-number of dollars and Y-number of things they want to buy with it. Show them that when the dollars run out, they can’t buy anything else. Have a conversation about the differences between wants and needs.
Piggy-back a lesson in saving onto the concept of budgeting. If they want to buy more than they can afford, they can save up for it. Or show them that they can find a way to earn extra money with a child-sized side gig, like pulling weeds, raking leaves, cleaning out cabinets, or whatever isn’t on their usual chore list. Offer them age-appropriate savings methods, from a piggy bank when they’re small to a savings account at the bank later on.
Show, don’t tell is a good way to start this lesson. If they want to buy something but don’t have the money for it, offer to lend it to them. Tell them you’ll give them the $100, but they’ll owe you $125 back, to be paid in weekly installments. Tell them what the penalty will be if they don’t pay you back every week on time. And explain the difference between smart reasons to go into debt (to buy a home, to finance a college education) and dumb reasons (to buy something like a car or a gadget that will lose value over time).
Introduce sound investing
When they’re old enough to understand the concept, teach them about the miracle of compound interest. Explain that if they start investing $400 a month at age 25, assuming a seven percent annual investment return, they’ll have over $1 million by age 65. Teach them about the different kinds of investment vehicles, and the pros and cons of each.
If you don’t fully understand these concepts yourself, now is a great time to learn. Check out the National Endowment for Financial Education (nefe.org) and the Consumer Financial Protection Bureau for excellent resources on how to teach yourself and your child about money.
Giving your child a solid foundation about personal finance is crucial to helping them toward the path of financial independence. It will be time well spent.
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