How to Help Kids Become Financially Literate
Teaching children good money habits early on will foster better money management habits as adults.
Unfortunately, the reality is that most schools do not teach financial literacy. Surprisingly, only 22 US states require an economics class and 17 states require a personal finance class in high school. This means that simple things such as learning how to set up a budget or how a credit score is calculated is lost on many as adults. It also means many adults are left wondering where to start when it comes to their own kids.
Financial education at an early age can help increase knowledge and confidence about money. It can also decrease the likelihood of financial problems later in life. Learning about finance starts at home. As such, it is important for you as their parent, guardian or loved one, to teach your children the relationship between earning, spending and saving to help them understand the value of money. Teaching young children how to manage their money creates a brighter financial future!
Teaching kids about money does not have to be complicated. There are ways you can help build solid financial skills early on and create a better financial future for your kids. Here are a few simple and fun ideas for incorporating financial literacy lessons into your kids’ lives.
Use an Allowance as a Teaching Tool
Allotting a certain amount each week for an allowance can be a valuable tool. An allowance can teach kids how to manage their money, make decisions about saving and spending, and help them to understand the impact of their choices. Consider making the money reward-based. For example, you can create a chore chart with each chore being a different value and should vary based on your child’s age (i.e. doing the dishes pays $5, mowing the lawn pays $10). Once they have earned the money, let them decide how to spend the money; you might even want to teach them how to save their money while you’re at it. Better yet, offer “interest” (courtesy of the Bank of Mom and Dad) as an incentive for saving their money.
Let Them Plan and Manage a Family Outing
Give them a modest budget and allow them to plan a family outing; perhaps a trip to a museum, an aquarium or an amusement park. It will be a fun activity for the whole family, while also teaching your children the value of a dollar. Planning and coordinating a family event gives them ownership and control over what they want to do and how they want to do it, but also demonstrates that it costs money to do things. Allowing them to decide what to pay for teaches them how to make certain lifestyle choices based on how much money is available to them and what they think is important.
Show Kids How to Use Online Budgeting Tools
You can start this as soon as your child has a bank account; most banks allow you to manage accounts online. Teach them to log in and view the account, the balances and purchases. Discuss how the balances change based on interest or spending and depositing money.
Teaching older kids how to use a digital budgeting tool such as Budget Jewel lets you easily show them how to organize, manage, and prioritize your personal finances. Introducing kids to budgeting tools is an important part of financial literacy. Budgeting allows them to see the larger financial picture and helps them understand how basic necessities such as groceries, electricity, and toiletries constitute a large part of household expenses.
Show Your Kids Money in a New Way
Depending on the age of your kids, you may want to teach financial literacy by introducing them to money, budgeting and spending in a fun way. There are many online games and even board games that instill good financial habits. A couple of games you might want to have your kids try out are Peter’s Pig Money Counter, The Great Piggy Bank Adventure, Money Metropolis, and The Be Your Own Boss Challenge.
Emphasize the Importance of Saving!
Encourage kids to save their money. They may be tempted to spend it right away, but encourage them to save to buy an item that is of greater importance. If your kids mention they want a certain big ticket item, remind them that they need to save up more money over a longer period of time to afford it. This will teach them to forgo buying smaller things to save up for bigger things. Teenagers should consider part-time jobs such as babysitting to make extra money. Suggest to them that they save it up towards a car or their college education. The earlier they grasp this concept the better off they’ll be in the future and the more financially literate they’ll be!
Educating young kids about the importance of money is the best way to create financially literate adults. Children who learn about personal finance at a young age are more likely to have a higher future savings rate and net worth. Even if money is tight, now is a great time to teach your kids to be financially literate for life!