Managing finances is one of the most stressful and sometimes confusing parts of adulthood. While it’s touched upon a little bit in primary education, it’s usually not given enough attention to give younger generations enough know-how when it comes to managing money. That’s where parents or primary caregivers can step in. You can help set your child(ren) up for success by teaching them good financial skills early on.
4 Tips for Teaching Your Child How to Handle Money
1. Start Early
Research shows that financial habits and perspectives start as early as age seven. The earlier you can start practicing money management and financial literacy skills with children, the better. Start by explaining what money is and how it’s used. If you can, use cash so they can visually see you using money to purchase items.
When it comes to using credit or debit cards, explain that, too. Because it’s not physical money, you’ll have to break down how it works. Show them the receipts after paying with a card so they can see the numbers. It might take a handful of tries before your little one picks up on it, but be patient!
2. Emphasize Saving
Since early interactions with money usually involve spending, you’ll have to highlight the importance of saving. It’s easy for children to associate money with just spending.
Teaching your child about saving money helps teach discipline and helps them learn that instant gratification isn’t always the answer. It teaches them planning and preparation. A good way to start here is with a good ol’ piggy bank. When they deposit money into their piggy bank or savings jar, reinforce it with positive language.
However, keep in mind that younger kids don’t have as much of a long-term mindset. So when teaching them how to save, stick to short-term goals. Perhaps they save up for a toy they want or a trip to the zoo. As they get older, this will translate into long-term savings.
3. Let Them Earn Money
Of course, none of these lessons would be possible without kids having their own money. How you go about this is up to you. You might establish an allowance and stipulate that it’s dependent upon them keeping up with a few household chores. This will help them feel like they’re actually earning their money rather than simply being given it. It can also allow them to negotiate increases based on new chores, etc. If they want to try their hand at a lemonade stand, it could be an opportunity not only for them to earn money but learn about investment and profit.
4. Establish Good Spending Habits
As they learn about money, teach your children about budgeting. This goes along with saving. Let them make their own decisions about their money, but stress that it’s not always just about buying what you want when you want it. One method you can take is to set up different piggy banks—one for spending and one for saving. Make it a requirement to put money in both, but let them decide how they want to divvy up their earnings.
This is a good time to teach them how money is used on things you need or to pay other people. If they miss a chore, deduct it from their allowance or have them pay you for doing it for them. This helps them learn decision-making skills and realize the reward-consequence nature of finances.
Teaching kids about money starts young, but it’s important in helping them become financially literate adults. If finances are a source of stress or a problem for you, consider reaching out to a counselor or therapist to work through it so you can pass on those skills.