We all want our kids to be successful in school, but what about financially successful in life? Teaching your children about finances is one of the most important things you can do. But how do you go about introducing money and the proper way to handle it to your kids? If you don’t teach your children about the proper way to deal with their finances, they probably won’t learn the value of money and as a result, paying their bills as well as budgeting their money may come as a surprise to them later on in life. If you start teaching them when they are young, they will be more likely to manage their money well when they grow older and have to support themselves and their own families. So how do you teach your kids about money?
Teach By Talking to Them
This one is often so underrated so I thought I’d mention it first. Don’t expect anyone else to teach your children the proper way to manage their finances. If you want a job done well you have to do it yourself and teaching your kids about money is no different; don’t leave your child’s financial education up to chance. Incorporate it into their lives on a regular basis. Be sure to sit them down and teach them the basics of finances like if they want to buy something they will have less money than they started out with. Teach them about savings accounts and chequing accounts, about getting a steady stream of income and about how expenses need to be paid every month. As they grow older, start talking to them about debt, credit cards and credit scores. A child’s attitude about money develops early in life, so try to talk them about it at an early age; don’t wait until later to talk to them about this. Learning about money now will help them be financially stable later on.
Teach By Setting an Example
It has been proven time and time again that children learn by copying so one of the most effective ways you can demonstrate proper handling of money to your children is by setting a good example. Try to make your own finances in good standing and talk to your kids about how you do so. When talking about your money, don’t send the kids up to their rooms; instead try to discuss it with them so they can increase their understanding of finances. For example, if you hand over some money to your husband and ask him to put it into the savings account, do this in front of your children; they will be more likely to save in the future as a result. Even when you’re paying your bills online, call your children over so you can explain to them what you’re doing and how you are doing it. Explain to them the importance of bargain hunting and buying things on sale when you go shopping together. There are opportunities to teach your kids about money everywhere so take the time to look for them and explain them to your kids.
Teach by Letting Them Experience it for Themselves
As much as you may discuss finances with your children, it is still important that they learn some of this by doing instead of just hearing about it. We all know the story of the spoiled little girl who never understood the value of money because her daddy always bought everything she wanted for her. Even though we all want to spoil our kids, it is much more important to lay down some ground rules and let them learn the value of money for themselves. One of the best ways to do this is to introduce an allowance, but be careful of how you do this. You don’t want to give your children a sense of entitlement by giving them money for nothing; pay them a small amount for doing household chores so they understand that they can only receive money by doing something. It is also important that you start them off with a small amount of money. Don’t hand over $50 just for taking out the garbage or they will be sorely disappointed when they end up getting their first job. It’s better if their finances are rough early on, so they can understand the value of money and make it easier for themselves later on. Another important thing to do is to go with your child to the bank and open up a chequing and/or savings account just for them. This way they can feel in charge of their own finances, and you can show them what it’s really like.
Teach by Explaining Budgeting
After you have given your children an allowance, sit down with them and explain the importance of setting a budget, saving money and planning for the future. For example, if your child wants a particular toy, instead of just giving him the money to buy it, or buying it for him yourself, sit down with him and discuss the importance of saving up his allowance so he can buy it himself. Not only will he learn valuable life lessons with this, he will probably take better care of the toy as well since he had to work so hard for it. Try to teach them the value of budgeting all their money using this system. For example, if you give them $10 a week for allowance, explain to them that they should put away $3 in their savings, $5 for a mother’s day gift and they have $2 left over to spend as they please. Regardless of what the money needs to be spent on, it is important to instil budgeting into your children at an early age.
Teach About Saving and Investing
This is a very important point which most parents don’t teach to their children. As they grow older, be sure to teach them that they can’t just spend all the money they receive (even if they are budgeting properly and saving and bargain hunting). It is important to teach your children to think about the future and to invest properly so they can pull out more money than they put in. Of course, make sure you’re also educated in this area; you wouldn’t want to give your child the wrong advice. Explain to them about the importance of a retirement fund and of investing in assets such as buying a house. Explain to them about certain things that lose value as time goes on (such as buying a brand new car), and things that increase in value as time goes on that are worth investing in (such as buying a house). Again, it is so important that you know what you’re talking about and it’s a good idea if you have savings and investments of your own. This way you can set a good example as well as explain to them about your investments so they have a better understanding of what it really means.
Teach them by Imitating Life
Life isn’t always easy and you should make it a point to show your children early on that mismanaging their finances can lead to unpleasant consequences. In real life if you don’t pay your bills, the service gets cut off. Prepare your kids for the real world by creating consequences and standing behind your decision. For example, if your teenager has a cell phone, tell him you’ll pay the first $50 and then if he goes over that, he will have to pay the rest himself. The most important thing to do is to stand by your word. Your kids need to know that you’re serious and if they don’t monitor their money closely, the consequences could be dire. If you’re nice to them about their consequences now, it’ll be much harder for them later on when they have to learn all these lessons themselves. It’ll be better for everyone if you implement the punishments and guide them along the proper way to handle their money.
Teach Them about Financial Responsibility
The last thing you want to teach your children about money is how to grow into financially responsible adults. Of course this isn’t always possible (many times they just need to learn themselves through trial and error) but you can always bring it up. As they grow older, teach them about the dangers of being too much in debt, how to pay off any debt they might have and how to use credit cards responsibly and to their advantage. Explain how credit works, why they need it and how to keep it in good standing. Teach them to plan out their purchases and not buy whatever they want, whenever they want, but instead to think carefully on it, save for it and shop around for the best deal. You want your children to have the best of everything, but you also want them to be able to provide this for themselves, so teach them as much as you can as early on as possible to ensure the best possible outcome later on. We all love our kids so much and want them to have everything they want, so why not teach them how to do it for themselves?