Why It's Important
Your child will be faced with many financial decisions throughout his life, and as a parent, it's up to you to ensure he's prepared to face them intelligently. For example, in high school, he'll be tempted to take out student loans. In college, he'll be bombarded with credit card offers. By instilling strong financial habits early on, your child will be prepared to conquer common challenges as he gets closer to adulthood.
Although many schools attempt to teach basic financial literacy to students, the responsibility falls to the parents to apply those lessons to real life. Learning how to count change in the classroom is very different from getting a real allowance, opening a savings account, and creating a budget to help your kids buy the things they want.
Fun Ways to Teach Younger Kids About Saving
Teaching financial lessons can begin as early as preschool. Read on for some fun ways to get younger kids excited about saving.
Pretend to spend. When your kids are in elementary school, set up a fake store or restaurant at home. Give them a certain amount of fake money and create scenarios, like buy five items with your money or buy three meals for less than $20. By learning how transactions work in a safe environment, they'll understand them better in the real world.
Board games can be a great way to introduce financial concepts and teach children how to balance spending and saving in a fun and interactive way. By seeing how much cash they have, kids will learn how to visualize money. You can also use fake money to explain the family budget.
Make It a Game
Kids are often drawn to competition, so make saving money a game. Challenge them to save a designated amount each month. If they do it, they win a bonus from you. If they don't, they don't get anything extra. You can also add other incentives, like going to a movie or buying a new pair of shoes — whatever makes your kid motivated to win.
Let Them Help At Yard Sales
Yard sales are a great place for children to see what it's like to sell something. They can help before the event with pricing the goods and deciding what they want to sell. Allow them to help negotiate and collect money, and this will teach them how to make change quickly, market their goods, and feel confident in their abilities.
How to Teach Older Kids About Saving
A great first step is to match their savings. Just like your employer matches your 401k contributions, match whatever your child saves. This can work for big purchases like a car or laptop, and will help them value their gift more and appreciate how long it takes to save for a big-ticket item. Try creating a thermometer-like countdown to help them visualize their savings goals.
Let Them Make Their Own Purchases
Giving kids an allowance can help them learn how good it feels to buy something they really want. For example, if you're going on a family vacation or big trip, let them know they'll be responsible for their own souvenirs. It will cut down on them asking you to buy something, and it will teach them the value of buying things for themselves. Plus, it'll make those decisions feel more real if they are making purchases using their own money.
Give Them a Budget
Instead of giving your kids a piggy bank without any direction, show them how to divide up their money between saving, spending, and giving to charity. By instilling these habits while they're young, it'll be easier for them once they're dealing with larger sums of money. You can use your own budget as an example and share what percentages you'd recommend they use. You can also create short-term savings goals and long-term goals — that way they'll learn how to save separately for a new video game versus a more expensive item, like a new bike.
Make Them Part of the Process
When you're shopping with your kids, encourage them to join you in saving money. For example, give them coupons at the grocery store and ask them to find the right items and compare prices. If you're shopping for clothes, give them a budget and challenge them to find the items they need within the allowed amount. As your children get older, show them how you pay the mortgage or what your 401k statement looks like. These are all great ways to make them more comfortable with financial documents before they have to look at their own.
Be Open and Honest About Your Finances
Setting an example is the best way you can teach kids about saving, so when your children are old enough to understand, let them in on the family finances. Whether it's explaining how much the mortgage costs or how income tax works, make them a part of the conversation. It's OK to share your salary, too. Explain that they shouldn't discuss it openly, but it's important for kids to see what happens when you work hard. Celebrate your promotions and raises with them; that way, they'll know how your income affects the family as a whole.
Whether you're using coupons at the grocery store or depositing checks on your phone, let your kids see what you're doing. Answer their questions and explain the reasons behind your decisions. Show them that they can ask any financial questions they want, and don't be afraid to admit your mistakes — it might just help them avoid making the same one day.