Table of Contents
- 1 10 Offer Activities That Teach The Importance Of Earning
- 2 9 Teach Money Management with a Joint Account
- 3 8 Show Them The Power Of Saving
- 4 7 Work Through Financial Priorities
- 5 6 Instill Smart Spending Habits
- 6 5 Explore Opportunity Cost
- 7 4 Model Smart Financial Decision-Making
- 8 3 Explain The Benefit Of Giving
- 9 2 Explore How Loans Work
- 10 1 Help Them Create Budgets
Believe it or not, it’s never too early to start teaching your child about money management and finances. In fact, many of the children who experience financial stress later in life are those who weren’t taught financial lessons during their early childhood. Teaching kids about money at a young age will help build good financial habits and better prepare them for a stronger financial future. And, it all starts with these 10 financial lessons from parents.
10 Offer Activities That Teach The Importance Of Earning
Unfortunately, our children live in a world where most financial transactions take place digitally. This makes it difficult for kids to conceptualize money as we did as children. For this reason, Matt Gromada, Managing Director, Head of Family, Student and Starter Banking at Chase says you must provide children with the opportunity to earn money from a young age so you can teach them how to properly spend and save, not just receive money as a reward.
To do this, offer your child activities, like a chore list they can complete, to earn an allowance. Then, you can reinforce the importance of earning by offering additional chores that aren’t on the child’s list with dollar amounts attached to them, so your child can choose to earn extra money.
When your child sees something they want in a store, point out the price and relate it to their chores. This helps them see why they need to earn money and shows them just how much that toy or other item costs in the effort.
9 Teach Money Management with a Joint Account
Hands-on learning is one of the best approaches you can use with your children. Unlike speaking in hypotheticals, hands-on learning encourages problem-solving skills and allows children to see the consequences of their mistakes play out right before their eyes. This is exactly why Gromada says opening a joint bank account with your child is one of the best ways to teach them money management from a young age.
According to Gromada, creating an account that is accessible to both parents and children offers several benefits. First and foremost, it opens the door for important conversations about the basics of finances. Furthermore, it gives children a sense of independence and freedom. Most importantly, it gives children real-life experience with money management while you oversee their spending and saving decisions, making it a safe way to learn.
If you’re looking for a bank with accounts designed for children, Gromada recommends Chase. In fact, he says Chase First Banking is an option for kids age six and older and comes with their very own debit card that is managed entirely through the Chase Mobile app. You can even deposit that allowance into their First Banking account, where you can also track their spending, create recurring payments for allowances and set spending limits.
8 Show Them The Power Of Saving
Children don’t just need to learn how to keep up with their bank accounts — they also need to learn how to save money. According to Gromada, saving for a rainy day is an essential financial step to learn because it provides peace of mind.
Children don’t always think about unexpected expenses, so parents can provide real-life examples and show children how maintaining a savings account helps account for those issues when they come up. Furthermore, children can learn how saving money helps them make large purchases down the line.
7 Work Through Financial Priorities
Young children often struggle with prioritization when it comes to money. They get excited about items they see in the store and enjoy the thrill of instant gratification. Unfortunately, when parents don’t teach the concept of financial priorities, kids continue this habit into adulthood and make financial decisions that cost them big time.
From an early age, you should work through financial priorities with your child. In fact, Jessica Weaver, CFP, CDFA, CFS previously shared an easy visual exercise to help parents teach their children about financial priorities, and it works well.
6 Instill Smart Spending Habits
In addition to teaching children about financial priorities, you will also want to help them learn how to live within a budget and instill smart spending habits from a young age. Usually, allowances work well for this, just like they do with teaching other habits.
In an interview with Forbes, Tim Sheehan, co-founder and CEO of Greenlight, said learning how to budget now will help them when they enter the real world. If you set up a bank account, such as the Chase First Banking account Gromada previously suggested, your child can track all of their allowance deposits you make and all of their purchases directly through the mobile app. If you also have your child keep receipts, they can use those to fill in the gaps when they can’t figure out where their money went.
5 Explore Opportunity Cost
Although teaching smart spending is always beneficial, the team at Ramsey Solutions says you also need to explain to children how financial decisions impact future opportunities. When you explain this in a way that relates to two decisions they are looking at, it helps them see that they can’t have everything. This is an important financial lesson to learn, and one we often gloss over.
4 Model Smart Financial Decision-Making
Kids don’t just learn how to spend and save with their own funds — they also learn with our help. Therefore, you should always try to model smart financial decision-making when you can. In fact, you can even talk to your children about the financial decisions you make, so they get a better idea of how it all works.
For example, you may point out something you like at the store, and your child may ask, “Why don’t you just buy it?” You can explain to them that you’re currently trying to save money for the family’s summer vacation (or other major purchase) and that you don’t really need the item.
By explaining these tactics to your child, they will see smart decision-making play out before their eyes and learn from your choices.
3 Explain The Benefit Of Giving
When we think about financial lessons, we usually focus on saving and spending. However, giving to charity is also a smart lesson to teach children, especially when they’re young. You can easily do this by explaining how charity works, then letting the children select a charity that aligns with something they’re passionate about. They can set up small automatic payments to go to this charity, and many of them will provide updates on how your funds are being used.
2 Explore How Loans Work
Although most advice articles will tell parents to simply tell kids that loans and credit cards are bad, the fact is these are typical parts of our lives as adults. So, instead of avoiding the topic, you can explore how these types of lending work, so your child is better prepared when they grow up and need to make decisions.
For example, you can explain the difference between personal loans, which allow you to borrow money and pay it back in monthly increments, and credit cards, which give you revolving access to funds but come with higher interest rates. You can give examples of smart ways to use each of these types of loans, and give scenarios that make sense for each one. This will help kids understand logistics a bit more, so they can make their own decisions down the line.
1 Help Them Create Budgets
As your children grow older, budgeting will become much more important. However, that doesn’t mean you can’t teach them how to budget from a young age — it just might look a little different. They can make a plan for their money, and try to stick to it. They can also learn how impulse purchases (like candy bars) impact their ability to save for larger items (like a new gaming console).
Finances aren’t as complicated as we make them out to be, especially if we teach our children how to manage their money from a young age. By exploring these financial lessons with your children and continuing the conversation as they grow, you are setting them up for success once they move out of the house.