10 Tips for Teaching Kids About Finance
It’s never too early to teach your children healthy spending and saving habits so they can build a financially stable future for themselves. There are loads of ways to introduce finance to kids and make it fun, too. Read on to find out more about teaching kids about finance and how finance for kids can be advantageous for your children today and in the long-run.
When Should I Start Teaching Kids About Finance?
It’s never too early to teach your children about finance is age-appropriate ways. For example, when your child is a toddler, you may teach them about managing money with a piggy bank. As they grow into adolescents, you may want them to have a bank account and learn how to manage it. Teaching kids about finance doesn’t mean you to get a five-year-old to understand how the stock market works. It means you’re providing your child with the basic framework they need to develop healthy financial habits as they learn and grow.
The goal is for you children to learn that they can’t and shouldn’t spend all of their money at once. You also want them to understand why it’s important to save, how to budget themselves, and how to wait patiently before spending their money. You want your children to be able to grow into adults who do not impulse shop but rather, can be patient enough to save their money and wait for it to grow before they dive in.
Top Tips for Teaching Kids About Finance
There are many different ways you can introduce healthy financial habits to young children. Here are some great ways to start teaching kids about finance.
- Demonstrate Healthy Spending Habits
The first step to teaching kids about finance is to demonstrate healthy habits yourself. Your children learn from early on how you spend. If you impulse shop or buy things you don’t need or use, it simply teaches them to do the same. You can and should exercise healthy spending habits and you can narrate your actions and choices to your child. For example, if you come across an item you want but don’t particularly need, you can say something like this to your child: “I like this and I would like to buy it but I don’t think I really need it. I prefer to save my money for something I need rather than wasting it frivolously.” As they grow, your children will learn to emulate your spending habits.
- Get Them to Save
Whether it’s glass jar, a piggy bank, or a bank account for a teenager, get your child to put money away and to only take what they need when they need it. This will show them how long it takes to save a substantial amount mount versus how easy it is to spend it. They will learn to wait and only spend when they truly want something. Essentially, you want them to understand that they can’t have everything and if they do not save wisely, they’ll have nothing.
- Don’t Bail Your Kid Out
If you use a money-saving jar for your child to learn to save for items they want, then they must use that money to buy the things they want. Of course, your job as a parent is to provide your children with the necessities of life. But their savings is for the extra stuff like toys they like but do not really need urgently. However, if your child is a dollar or two short for an item that have been wanting very much, don’t simply give them that extra money. That will only teach them that someone will bail them out when they can’t afford something and this can be the beginning of an unhealthy relationship with debt. Instead, help them earn the missing funds so they learn to work for what they have. They’ll also be much prouder of themselves if they can feel self-sufficient.
- Charge Taxes
Yes, charge your children taxes! If they receive $100 for their birthday, charge them tax and be sure to put that tax money away for their future. The concept is what you want them to understand. They can’t keep every penny they get. Some of it has to be saved and some goes to taxes. In their reality, their “taxes” should still go towards their future but they are still understanding that not every penny that comes in can be counted on for spending.
- Give Your Child an Allowance
Giving your child a small allowance will allow them to learn a little bit more about budgeting. They receive funds and then they have to balance their budget to make sure they have enough to save and spend. When the money runs out, it’s gone. This will teach them that spending everything they have isn’t a very good financial strategy. Giving your child an allowance can also allow them some feeling of independence. They don’t necessarily need to ask for everything or wait for their birthday to ask for something. They can save up on their own and get to purchase something they really want all on their own. This gives them a sense of pride which is an important part to learning about finances for kids.
- Teach Them About Credit
When your child is a teenager, it’s a good opportunity to teach them about credit and how to manage it. You can get your teenager a credit card with a low limit to use in cases of emergency. They will also be able to learn how easy it is to add expenses to your card but how it may be a little less simple to pay it all back. The best way to teach them the importance of buying only what they can afford to pay back and how to manage their credit is a lesson they learn best through practice with your guidance. They should learn that a credit card is not to bail them out when they have no cash. Instead, they should use them in cases where they don’t want to carry a lot of cash on them or if they simply want to build credit by using the card up to an amount they already have in the bank.
- Buy Books About Investing and Interest
You can find books that teach about investing and interest for primary school children to young adults. There is plenty of age-appropriate advice out there in the form of literature that can help your children learn about saving, investing, and growing their wealth. Investing and interest can be complex concepts for even adults to understand well. That’s why it is a great idea to introduce the topic slowly and steadily over the course of their upbringing. Over time, they will learn so much more about it and will be well-equipped to build wealth for themselves and invest in their future.
- Buy Stocks for Your Children
Another great way to teach kids about finance is to purchase an investment for them. You can buy a investment option from your local bank or you can invest in the stock market – Disney stock, for example. Every year, you can review with your child what that stock value is and how much it has grown. If you start this early on in their lives, they will be able to see some real growth with the value of their stocks before you know it. When they grow up, they will already have a solid understanding of how to invest and grow their wealth slowly and steadily.
- Stress the Importance of Financial Advising
As much as you can help teach your kids about finance, stress to them the importance of meeting with a financial advisor annually when they are in their late teens to early adulthood. They should learn where to go for help and sound financial advice besides depending on you to help them. They will learn that a financial advisor can help them make the most of their money and build a financially secure future for themselves.
- Get Your Child to Invest in RRSPs Early On
When your child turns 18, start an RRSP plan for them and teach them the value of putting money away in there. The earlier they start saving for retirement, the more money they will have when that day comes. It can be a difficult concept for young people to grasp because retirement seems like a lifetime away at age 18. But as the rest of us know, the years start to go by quicker as quicker. Learning about how to save adequately will ensure they stay on a path towards financial success.
The Benefits of Teaching Kids About Finance
There are so many great ways to teach finance for kids, but what are the real benefits and advantages of taking the time to do this over the course of their lives? There are so many benefits to raising financially literate kids who will become financially literate adults. Her are just a few of the benefits to teaching kids about finance.
They Are Less Likely to Get into Debt
More often than not, people get into debt because they have mismanaged their money or because they don’t have a very good understanding of finance in general. This can lead to common mistakes that get consumers stuck in debt. Once the cycle of debt begins, it can be very difficult to break free. Kids who are financially literate become adults who make wise financial decisions and are much less likely to get caught up in debt.
They Develop Proper Spending Control
When kids learn about balancing their budgets early on in life, they become much better as restricting their spending and controlling their finances better. If children never learn about money prior to adulthood, they usually can’t exercise much self-control and can become impulse buyers. Having a balanced view of money management that they have developed over their entire lives can help them to be wiser about spending their money.
They Are Less Likely to be Taken Advantage Of
Not all financial advisors in the world are necessarily going to be the best people for the job. Some may even have their own hidden agendas. If your child has no understanding of finances, they are likely to blindly follow the advice of others – whether that advice is sound or not. While they may need to seek professional assistance from time to time, they do need to be able to understand what is right and what is wrong. If they have a solid financial base, they will be more capable of taking control of their own financial situations.
They Can Take Advantage of Good Opportunities
People with excellent financial literacy skills can take advantage of good financial opportunities to grow their wealth. They will be savvy enough to understand what’s a good opportunity and if they have been smart with their money, they will be ready to dive in when a good opportunity comes knocking.
Teaching Kids About Finance at Different Ages
At different ages, finances for kids will taught differently. Your four-year-old is not likely to understand opportunity cost or compound interest, but they can understand collecting coins and bills until the jar is full. Here are some ways for teaching kids about finance at different ages.
Toddlers
The easiest way to teach very young kids about finance is to start with a clear jar. This way, they can see the money filling up in their jar. You can count it and sort it with them and keep a chart of the total amount on a sheet of paper. Ask your child to choose a goal – an item they really want. Every week, you can show them how much closer they are to their goal by counting their money and colouring in a thermometer. They will actually be able to visualize their goal and how close they are getting. Once they save enough, they will get the satisfaction of having competed the process on their own.
Primary School Children
Kids in primary school can learn much more about finance through allowances, age-appropriate books, and even by sitting down with you while you tally the receipts of the week. Show them what the cost was for gas and food. How much did you save and how much is left? These simple exercises will eventually make perfect sense in their minds.
Teenagers
This is definitely the time for your child to open a bank account and start working part-time – at east while they are on summer break. This will teach them the value of earning money and how to save it for a rainy day. They can also become responsible for paying for the extras they want, like outings with friends, snacks after school, etc. You teenager should be able to sit down with you at least a few times a year to see how your invested money has grown and how money you have saved for them has grown just by collecting interest.
Young Adults
When your child is new to adulthood, they can and should get a credit card and learn how to use it appropriately. This is a great time to get them to start investing even small amounts in their RRSPs and have them sit with you regularly to read and understand financial statements for your savings and theirs. Understanding how wealth grows when we spend less and save wisely is an invaluable lesson for a child and it will serve them well all their lives.
What if I Am Not Financially Literate Myself?
If you are not very financially literate, look at this as an opportunity for you both to start learning more. It’s ok to show your child that you don’t have all the answers, but that you’re willing to look for them and develop better financial habits. This will show them that even if they make mistakes, they can always improve because it’s never too late to learn about finance. Start by purchasing some books on personal finance and meeting with expert financial advisors that people you trust can recommend.
Learning about the world if finance is crucial for you to be financially secure and for you children to learn the same habits. If you haven’t had good spending habits, share that with your children. Share your past mistakes and where they got you and what the consequences were. You can learn from your past financial mistakes and so can they. Teaching kids about finance doesn’t mean you need an MBA to do it right. You just need to show your child what a financially stable life is and how you can both work together to achieve that for yourselves.
If you are in debt and having a hard time with it, you can meet with a private lender or your local banking institution to discuss how you can minimize or consolidate your debts and achieve financial freedom sooner rather than later. It’s never too late to learn more about money management.