Because very few high schools offer courses in personal finance, the challenge of financial education for your children rests squarely on your shoulders. Children lack two things that adults have in abundance: experience and perspective. They need guidance from their parents to be smarter in the future. The earlier you start teaching your kids about money, the easier it will be for them to grasp sound financial habits that can serve them well for the rest of their life.
Teaching your children about money doesn't require you to have a perfect track record. Your mistakes can actually serve as an example of why a certain habit or strategy doesn't work. Try these useful tips below!
1Explain How It's Earned And How It Works
What is money? Children quickly learn that mom and dad use the money to buy stuff, but they usually lack an understanding of where that money comes from. It can be helpful to give them an example of bartering. Explain that long ago, a person might have traded a horse for a cow. But having money allows someone to buy a cow even if that person doesn't want a horse in exchange.
Explain to your children that people have jobs and work so they can earn money to pay for a house, car, clothing, entertainment, and other expenses. Make the point that money is a medium of exchange. You have likely exchanged a certain number of hours of your time to earn $100. You then spend that $100 on goods or services worth $100. Show them all the different types of money, including coins, and explain the values.
2Allow Your Kids To Earn Their Own Money
This is the best way to show them how money works. Let's dispel the misconception that money magically appears from the ATM. Give your children small jobs to do in exchange for money. Explain to them how your family earns money.
3Explain How Money Can Be Used
Explain to your child that money is exchanged for value, and it is either a good or service. Give some examples of goods. Furniture, toys, games, and food are some examples of products. Ask them to name a few more.
Also, give your children examples of services. Your state pays teachers for providing a service, and a doctor also provides a service to his patients. Paying someone to paint your house is another type of service. Explain that money isn't normally just given to an adult. Money must be earned by providing a service through some kind of job.
4Differentiate Needs From Wants
It can be helpful to explain to your child the difference between needs and wants. Give them a list of each and make a game out of it. See if they can guess whether an item is a need or a want.
Some examples of needs include food, water, clothes, home, and heat; wants would be toys, eating out at a restaurant, magazines, and owning a television. These are items that a child can relate to. Explain that needs always come first, and sometimes, there isn't enough money to buy everything that you might want. Sometimes, you have to choose.
5Introduce Bank Saving To Your Child
Most banks have special savings account for children with minimal fees or none at all. Discuss with your child why people keep their money in banks. Explain how interest works.
Encourage your children to continue building their savings account so that they can earn more interest. Go over the monthly statements with your child. This way, they can have the opportunity to develop an understanding of the process.
Teaching a young child about money is a great first step to ensuring a life with minimal financial worries in adulthood. Most monetary issues can be avoided by having good habits and an appreciation for money. Teaching your child about finances is one of the best things you can do for them.