One of the most important things that you can teach your children about as a parent is how to be smart with their money. The way that your kids learn to manage their finances will be a huge factor that will affect them for the rest of their life.
If they know how to budget effectively, save their money, make smart investments and take on good debt rather than bad debt, they will be able to use the money that they earn to its full potential. If they have poor spending habits, are not able to save and take on foolish debts that end up costing more than they are worth in interest, they will have a lot of money-related stress in their lives. Giving them positive money management skills as they grow up will arm them with the knowledge that they need to make good decisions about their finances.
Imparting your kids with smart money knowledge is important from a very young age. Even when they are only five or six years old they can start to comprehend the concept of money being worth something and exchanging it for items of value. As they grow older, you can build on this concept and teach them strategies for saving, budgeting and spending wisely so that they will have good money management skills in the future.
Understanding the Value of Money
The first step to introducing your kids to money is to give them an indication of its value. You can give them some spare change and teach them what each coin is worth, helping them to count up the total. You can also “play shop” at home, pretending to set up a storefront and sell your child’s toys at different prices. You can set things at different values so that they get the idea that a little bit of money will buy them a small action figure while a larger amount of money will buy them a bike.
Talk Things Through
When you are shopping with your child, talk through your mental process for making purchasing decisions out loud. Let your child know why you chose to buy a certain brand, such as because it offers a larger volume for a cheaper price. When you decide not to buy an item, you can explain why you didn’t think it was worth the money. This will help your child learn the process that goes into making a purchasing decision.
Many parents believe that discussing money with their children is a taboo subject, but it shouldn’t be. Children learn by your example and it can be very helpful for them to understand why you make the decisions that you do. Set a good example by managing your finances well and they will learn a lot from you.
Allowances and Savings
Giving your kid an allowance can be a great way to help your children to save money. It only needs to be a pound or two per week, but they will quickly realise that if they spend it right away they can only buy a small item but if they save it for a few weeks they can buy something bigger. You can even help your child research the prices of items that they can save up for, so that they know how many weeks they need to wait until they can buy the toy that they want.
At some point, your child will be ready to open up a savings account at a bank. There are many type of accounts designed for children that will work well for this purpose. Be sure to track your child’s progress so that they can see how their savings are growing, it’s great motivation to keep going!
These are just a few tips to keep in mind so that your kids can be smart and savvy with their money when they grow up and enter the grown-up world.
About the Author: Katie Latchford is a writer who believes that you should immerse your children in the world of finances as soon as possible to teach them the importance of budgeting and saving. As they grow older, you can teach them more testing subjects such as using cash loans and how elements of a mortgage works.