For the longest time, parents weren’t that keen about discussing money matters with their children. Many adults are aware of this because they too have parents who have always treated the topic as taboo in the household. Worse, kids aren’t likely to learn about finance in general in schools.
We now live in a digital world where the ability to navigate personal finance is essential, and there is no better place and time to introduce our kids to the subject than inside our very homes, and while they’re still young. If we want them to be financially successful adults, then we must do the best we can to help them become financially literate while they’re still under our wing. Let’s teach them about money at an early age, and they will stand a better chance for financial success.
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Here are some tips for teaching financial literacy for kids, which would help set them up for financial success.
1. Discuss money matters with them.
As mentioned above, money is a taboo subject in many households, and such a policy isn’t doing children any favors. Parents with this mindset should change it for the sake of their children who are growing up in a society that is increasingly becoming more consumer-driven.
The concept of money is something that children will be naturally curious about, especially when they see that you buy them food, clothes, and all the things the household needs. Before they conclude that money simply comes from ATMs or that you just take whatever you want from stores, teach them that you have to work hard for it, that it’s not for free. That would be a good place to start educating them about money and how it works.
2. Assign them chores.
Some parents balk at the idea of having kids do chores because they think of it as “child labor” and that it takes time away from their schoolwork and playtime, two of the most important things every child should focus on.
Schoolwork and playtime are essential components of a good childhood, but so are chores. Kids learn how to become responsible when assigned tasks around the house. They also learn how to work well with others. Most importantly, chores help them develop skills and a solid work ethic, which will serve them well when they transition into adults.
If you want scientific proof of the importance of getting children to do household chores, then look no further than a study by researchers from the University of Minnesota, The study, which ran for 20 years, found out that chores are the best predictors of success among children when they reach their mid-20s. People who did chores as children are more likely to complete their education, choose a clear career path and have healthy relationships with their family and friends.
3. Allowance for chores.
It’s understandable when some parents don’t like the idea of giving their kids money for doing chores, but if you’re setting them up for financial success, paying them an allowance for chores they complete is an excellent way of teaching them the concept of an honest day’s pay for an honest day’s work. They will see that when they do work, they get paid, and it’s what’s waiting for them when they enter the adult world years later.
4. Teach them money management.
With children earning their keep via an allowance, parents should take the opportunity to teach them about managing their money so they don’t blow it all on candy, toys, or anything that typically catches a kid’s fancy. They could use your guidance to learn about saving up, living within their means, and spending the allowance they’re receiving in the wisest possible way.
5. Educate them about credit.
Your kids have probably seen you use your credit card more than once and may be wondering how a small piece of plastic gets them the things they need or want.
If you teach them how credit in general works, then they will learn at an early age that there are benefits and risks that come with it.
While still young, they will learn that credit must be used wisely so that they won’t bury themselves in debt, which is the situation so many Americans find themselves in these days.
6. Acquaint them with the idea of investing.
Saving is a concept that kids will find easy to relate to, but investing is an entirely different animal. After all, putting money in a piggy bank is a far cry from putting their money on stocks, mutual funds and the like.
So if you’re going to introduce the idea of investing to them, don’t start with an explanation on how stocks or bonds work. That would be the fastest way to make them lose interest in investments altogether, as all the technical details will, in all likelihood, only bore them. The most basic thing you can tell them about making investments is that it’s just a way of using whatever money you have to make more money.
For very young children, the lemonade stand is perhaps the most age-appropriate way to teach them about the concept of investing. Have them buy the materials for a few pitchers of lemonade and help them set up their lemonade stand. With a lemonade stand, they’ll learn about profit, loss, and making smart business decisions, among other things.
For older children, opening a guardian or custodial investment account for them should do it. If they’re old enough to take odd jobs, such an account would be a great place to put in the money they earn. They can set aside $15 or more for that investment account which will eventually grow over time and may even be big enough to help fund their college education.
In all likelihood, the results of teaching them about finance as children will vary. Some will succeed, while some won’t. Still, the beauty of preparing them for the realities of finance while they’re still kids is that even when they fail, they will always be armed with the knowledge that will help them recover from any setbacks, and eventually succeed financially.