3 Tips to Help You Teach Your Kids Financial Literacy
The process of teaching your kids the basics of money and finance can start earlier than you might think. Even if they're not ready to open a savings account or start a budget, they can start to understand and form good financial habits as early as 6 or 7 years old.
If you start exposing your kids to some everyday strategies for good money management when they're young, you can set them up for a healthy financial future down the road. These three approachable methods can help you get your kids familiar with financial literacy.
1 Include your kids in money talks
Around the age of 6 or 7, your child isn't ready to know the ins and outs of your budgeting methods or tax obligations. Nonetheless, they can still play a role in the family's everyday spending and have fun doing it.
An easy place to start is to make your child aware that items needed for living, such as food and clothes, cost money. Ask them thought-provoking questions like, "If I only have $100 to spend this week, should I spend all my money on food or toys?" Don't make your child feel like there's a wrong answer. Instead, continue the conversation. Help them understand the idea of prioritization, and differentiate between things they need and things they'd like to have.
With your older children—around 10 years old to early teens—you can start helping them better understand budgeting by letting them get more hands-on. Consider creating an allowance system for household chores. You could encourage them to rake leaves, mow yards or take on other easy tasks in the neighborhood. This will help them get familiar with what it takes to earn and save money.
Money sitting in a piggy bank might not be the most motivating way to get kids to make progress on their saving goals. Give them a tangible item, like a poster board, to track their progress. From there, help them make a list of items they'd like to buy over the next six months, and work with them to set their own budget.
2 Practice a positive money mindset
Ever hear things like, "I want a new toy," or "Can I buy that new pair of jeans?" If those items are out of your budget, you might be inclined to simply respond, "That's too expensive," or "We don't have the money for that."
Instead of responding in a negative way, consider rethinking these moments as opportunities to create positive associations with good spending habits. Remind your kids that your family follows a spending plan to make sure you're meeting all your needs and saving for the fun things. Then, give them a savings goal so they learn a money-related skill. For example, if they want a new toy, you might help them save some of their allowance each month or week until they have enough to buy it.
It can also be helpful to point out items you want during a shopping trip. For example, try saying, "I'd really like to buy this shirt today, but I'm saving for our family trip to Hawaii. I'm going to put the $30 in my vacation savings account than spend it on this shirt." It's a reminder to your kids that adults have wants just like they do, but self-control can help them save toward their goals.
3 Give your kids a savings goal
Another powerful financial literacy tool is to create a savings goal with your child. Let them pick what they want to save for, whether it's a new video game or money for souvenirs on your family vacation. Keep the savings goal realistic and reachable so they stay motivated.
Money sitting in a piggy bank might not be the most motivating way to get kids to make progress on their saving goals. Give them a tangible item, like a poster board, to track their progress.
The weekly allowance system is a common way to help your kids learn how to save, but you might also consider creating extra jobs around the house that your kids can do on the weekend for money. This takes the pressure off you to keep up with a chore chart but still gives your children an opportunity to work toward their goal.
Teach through experience and by example
You don't need to be an expert in finance to teach your kids healthy spending and saving habits. Let them see how you spend and save for everyday needs and wants. Reinforce the idea that every dollar bill earned has a job to do to serve your family. Hopefully, by learning the basics early, these good habits will become second-nature and provide a solid foundation for their financial future.
A few financial insights for your life
This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.