Life is all about choices. However, your choices relating to money largely shape your financial future. Maybe you’ve made some mistakes managing your finances in the past. And now you don’t want your kids to make the same mistakes or learn the hard way. So that’s why you should start teaching them financial literacy as early as possible. This is especially relevant now, given the high rates of student and credit card debt prevalent in the country. It is essential that you discuss various aspects of money with your children from time to time. This will help them acquire healthy financial habits as they grow and avoid costly mistakes. Wondering how to do this? Here’s a quick guide for teaching your children how to handle money.
5 Ways to Start Teaching Financial Literacy to Children
- Get them a piggy bank. Saving is the first and most important aspect of money management that your kids need to learn. Get them a clear jar or a see-through piggy bank to put money in. This will help them see how their money grows, and allows them to learn why it is important to save.
- Help them differentiate between needs and wants. This is the foundation for making good financial decisions. You should teach your child to distinguish between what is necessary and what is just nice to have. You can do this by showing them how you first use your money to buy food, medicine, and clothes. And only after these basic needs are met, you spend on other things that are nice to have, such as toys, a fun vacation, etc.
- Be a good example. Children are watching you all the time. They grow by imitating you. And just like any other habit, your financial habits rub off on them too. If you’re thrifty, they will learn to be frugal. However, if they witness wasteful spending, they will grow up thinking it is okay to spend beyond their means. That’s why you should have healthy financial habits that set a good example for your kids.
- Show them that money is earned. A key lesson in financial literacy is learning that money doesn’t come free. To help them understand that work and money are connected, make them earn money in exchange for performing additional tasks at home. Allow them to save up and use this money to meet their personal financial goals, such as purchasing a new toy.
- Teach them that money is finite. Even in wealthy families, it is important for children to know that money is finite. They should know that every purchase has an opportunity cost and that the money use for one purchase cannot be used for another. For instance, teach them that if they want to buy a video game, they won’t have the money for an extra pair of shoes. This learning is crucial to make kids understand the possible outcomes by weighing their financial decisions.
More importantly, teach them the consequences of making a financial mistake. Although you may feel the need to shield your child from making a poor money decision, try not to stop them. It’s always good to let them learn early and on their own. So step aside sometimes and allow them to make mistakes and see the fiscal consequences. After all, a $50 mistake is much better than a $50,000 mistake later on in life!