Teaching Kids About Money: Why and How to Do It
As a parent, it's crucial to introduce your children to the value and importance of money from an early age. Understanding financial concepts can significantly impact their future success and independence.
Why Teach Children About Money?
When children reach a certain age, they begin to understand that money is essential for everyday needs and wants. For example, when a parent asks, 'Mom or Dad, can I have 20 to go out with friends?' this is a common request as children grow older. However, if kids remain unaware of the concept, need, and value of money, they might become overly dependent on parents, affecting their success in life.
Financial guru Dave Ramsey highlights the importance of teaching children about money. In his opinion, schools and after-school programs often fail to cover the basics. Parents must take on the responsibility of educating their children about money.
Getting Children to Understand Money
To prepare your kids for financial success, start by explaining the 'why' – why you and the family work to earn money. Explain that money enables us to have the things we want and need, such as food, clothes, and video games. It's important to use real-life examples to make the concept of money tangible for them.
Teach your kids that work is necessary for success. This involves teaching them about budgeting and saving from an early age. By earning their own money, they'll learn about the value of money and the importance of discipline and structure. Encourage them to take on age-appropriate jobs, such as watering plants, mowing the yard, or washing cars. These experiences will build essential skills that will serve them well in life.
Using Allowances for Teaching Financial Concepts
Though Dave Ramsey suggests not using allowances because it doesn't teach strong work habits, you can still use this method effectively. Introduce the concept of 'commission' – money coming from work. Explain to them that spending, saving, investing, and giving are different uses of money.
Here are six practical ways to teach kids about money:
1. Leverage a Savings Vehicle
Depending on your child's age, use visual methods like jars or piggy banks for younger kids. Older kids can benefit from opening a savings account. Teaching them the act of saving physically will give them a concrete understanding of the value of money.
2. Assign Small Chores or Jobs
To prevent overwhelm, keep chores short and sweet for younger kids. Use a chore chart to track their progress. For example, picking up toys, finishing servings of vegetables, putting dirty clothes in a laundry basket, making their bed, and helping to recycle.
3. Show Them How to Spend Money
Shopping with earned money teaches them that money is needed to buy items. If they lack the full amount, show them the trade-offs. Save money in high-interest accounts or use a simulated stock market to introduce investing. Help them open a Roth IRA and teach them how to invest.
4. Teach Them Different Uses of Money
Introduce the basics of spending, saving, investing, and giving. With increased maturity, teach them goal-setting and delayed gratification. Consider using their savings for expensive items, encouraging patience and long-term thinking.
5. Help Them Think of Money-Making Ideas
When kids are out of school due to breaks, consider helping them find jobs. They can start as young as 14, such as umpiring youth games or earning from their hobbies. This not only provides income but also helps them become interested in working.
6. Teach Them Contentment
The modern world is filled with relentless marketing and peer pressure, leading to discontentment. Help your children understand that contentment comes from within and not from material possessions. Encourage them to save, budget, avoid debt, and give more than those who struggle with discontentment.
Teaching your kids about money is a long-term investment in their future. It takes time and effort, but the benefits will be worth it in the long run. This knowledge will help them be more independent, responsible, and financially savvy.
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