Financial literacy is one of the best gifts you can give to your kids. Being financially literate can help your children plan and implement a financial course that leads to financial security and freedom to pursue their other goals and dreams.
- Start early to ensure that you raise financially literate children.
- Teach your kids that it’s good to save.
- Allow them to earn money and discover budgeting.
- Teach them the importance of investing.
- Help them understand that debt can rob them of their future.
Your goal is to help your children understand money and have a healthy relationship with it. What should you teach your kids money-wise? On which financial skills should you focus?
Help your kids develop a healthy relationship with money.
Instill Healthy Financial Values
There are a number of truths about money that should form the foundation of your children’s financial values. Some of them are:
- The money you earn is valuable because it represents the time and effort you have spent.
- Save money so money can save you.
- Spent wisely, money is a tool you can use to create something beautiful. Spent wastefully, it can rob you of joy.
- You must control your money, or it will control you.
You can start educating your kids about money as soon as they are old enough to understand the concept of value. Let them see you making purchases with cash, so they understand that money carries some amount of value.
Shop together and let them know that the items you buy carry a price. Take time to show them how to compare one item to another to determine which is the better value.
Once they are old enough, you can play “store” at home with homemade money or banknotes. Give your child a set amount of play money and ask him or her to “purchase” items without exceeding the amount of money in hand.
As your children get older, it is likely that family members or friends might give gifts of money to them. When that happens, encourage your children to set aside some of their money as savings (more on that later) and some of the money to purchase items they want or need.
In this scenario, if they choose items that exceed the money they have been allotted, resist the temptation to augment their budget to ensure they can purchase the item. Teaching your children not to go over budget early on can save them from potential financial pitfalls in the future.
Instill the Spirit of Saving in Your Children
The world at large is increasingly focused on instant gratification. By teaching your kids to save up their money so they can buy something later, you open their eyes to the power of delayed spending. Getting used to this mindset will allow your kids to develop solid financial skills and healthy habits later in life.
Make the link between saving money and building their future clear to your kids. Allow them to see how your frugal spending habits have enabled you to provide well for them and secure your own future.
Get a piggy bank that allows your youngsters to see how their money increases over time.
Let Your Kids Earn Money
You can always create playful opportunities for children to earn some money around the house. Many parents choose this route instead of simply giving their children a set allowance. Get your kids to mow the lawn or help out with other household chores, and reward them with money. Make it clear that the more they help, the more they can earn (without going overboard, of course).
Such an approach teaches children to equate money with the value they create through an investment of effort and time. It teaches them the “value of a dollar” and emphasizes that a person does not get something for nothing.
Let Your Children Discover Budgeting
Once you give your young ones an “income” in the form of an allowance, payment for chores done, or rewards for meeting some specified goal (such as all A’s on a report card), the issue of spending decisions arises. Make it clear to your kids that money is a finite resource. To buy the objects they desire, they have to save up and refrain from making impulse purchases.
Depending on how old they are, your kids will quickly realize that they need to keep track of how much they spend and how much money they get. Provide them with simple budgeting tips to help them navigate their new financial responsibilities wisely.
Introduce the Concept of Investing
Your best bet to create wealth is to invest. Stress the importance of the long-term investment mindset to your children. Explain to them how investing works, and why it has become a must for people looking to preserve their wealth.
Investing is an essential part of financial literacy.
If you have older kids, explain inflation and deflation to them. Also, let them know how they can protect their wealth from these fundamental economic forces.
Be a Positive Example
If you have solid financial skills and you know how to handle money, you provide a positive example to your children every day. Teaching by example is the most powerful way of getting your message across.
If you think you can preach one thing to your kids and do something entirely different without them noticing, you will fail. Children are very good at detecting the true values of their parents.
Explain Debt and Everything It Entails
Debt is perhaps the greatest menace to your child’s financial future. Teach your kids everything you know about debt. Instill an attitude of debt-avoidance in them. Let them know why buying something now and paying for it later is usually a bad idea.
Concepts such as financial help and debt help are for later. According to scientific research, it is best for your child not to gain access to a credit card until approximately the age of 25. Only past that age can young people correctly link present actions to their long-term consequences.
Handle Your Own Debt Promptly
If you are currently struggling with credit card debt, take the time to research your debt relief options to secure your own financial future as well as that of your children.
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