7 Tips to Teach Your Children Financial Literacy
- Generally, by the time adults learn about the importance of handling money with careful thought, it’s after several costly financial mistakes.
- As a parent, you must equip your child with the foundational money principles to live a financially healthy life.
- Children learn about money differently than adults. So, teaching children the basics of financial literacy will take some creativity.
Many adults learn later on in life how money works. Generally, by the time adults know about the importance of handling money with careful thought, it’s after several costly financial mistakes.
As a parent, you must equip your child with the foundational money principles to live a financially healthy life. Once you’ve worked to become financially literate yourself, it is time to start teaching your children to become financially literate.
Children learn about money differently than adults. So, teaching children the basics of financial literacy will take some creativity. Here are seven tips to help you teach your children about financial literacy.
1. Talk About Money to Your Children
Money is a taboo topic. It’s considered distasteful to talk about money in front of family and friends, let alone children. In addition, money talk is typically seen as a private matter. Many people feel that money shouldn’t be discussed with anyone but the primary money-maker and the person receiving the money (i.e., grocery stores, bill collectors).
However, choosing not to discuss money can rob children of the necessary tools to build a solid foundation of financial literacy. Therefore, one of the important factors of financial literacy is vocabulary.
The best way for a child to comprehend money matters is by listening to their parents discuss money. So the first step to teaching children financial literacy is to talk about it with them and around them. Even unpleasant money conversations, like the child being unable to go to Disney World because their parents have to work to pay bills, will benefit the child in the long run if properly discussed.
2. Play Money Games
Most games for young children are very simple, but soon they can start playing more complex games that require them to manage resources.
Image Credit: Shutterstock.com / spass
Games involving money, like Monopoly, or resource allocation, can teach children about financial literacy. By using financial vocabulary while playing these games, children can learn the basics in a fun and engaging way.
3. Explain Your Financial Decisions
You may remember your parents telling you, “We can’t afford it.” That means nothing to a child. Your child wants it, and all you have to do is swipe that magical piece of plastic, so they think.
Take time to explain financial decisions to a child will give them a better perspective about how you manage money for the household. Talk about your family budget regarding planned and unplanned purchases. A conversation with your child about the family’s budget will increase their financial education and remove the barrier of not knowing how the family spends their money.
By discussing your money choices openly, children start to understand how you think about money, which will formulate how they think about money. So it’s never too early to start talking with your kids about money.
4. Use an Allowance to Teach Financial Principles
Allowance is a key money teaching moment. When you can help your children think critically about how money works when given an allowance, they can become better spenders, savers, and investors.
For example, you can have required percentages of what they can do with their money. Say 50% to spend, 40% to save (and invest), and 10% to give. Getting children into the habit of saving their money early on can be a huge leg up for them.
So if you give your children an allowance, take that as an opportunity to teach your children about money management.
5. Run a Lemonade Stand like a Business
We’ve all run a lemonade stand by setting up with our parent’s table, cups, pitchers, and lemonade. Then neatly pocketed the money without paying for any of the materials. Although it’s fun for your child to pretend to have a business and keep the money and spend it on their “wants,” this also teaches your child nothing about how an actual business operates.
Your little entrepreneur has given you a golden opportunity to teach them about the cost of a business. You can teach them about loans, profit, loss, and so forth with their lemonade stand. First, teach your children to calculate how much it costs per cup, then decide how much to sell it to make a profit. Then, loan them the supplies and charge them “interest.”
Your child may enjoy being an entrepreneur, and giving them the tools and resources to learn how to grow in that area will help them to succeed in life.
6. Teach Your Child About Investing Early
The earlier someone invests, the longer that money can compound and grow. So investing with your children as soon as possible is a great way to kick start their money journey.
But notice it is investing with your children, not for them. Taking the money saved from the allowance and investing it in your children teaches them nothing—they may just blow it all later on in life. So talking through your financial decisions about where you plan to invest the money will show them how important it is to let your money sit and grow.
7. Practice Delayed Gratification
Lastly, one of the most significant money mindset shifts that separate those who are successful with money and those who are not is the ability to delay gratification. This is helpful for two reasons.
The Impulse Buyer
First, it stops impulse buying. Impulse buying is causing many people to drown in debt. Every impulse purchase adds to the credit card balance, which means you are borrowing money only to have to pay it back with interest later on. To curb your impulse buying, wait a week or two to think about whether you need the purchase or not.
Second, saving to make a purchase instead of financing a purchase is a better decision 90% of the time. Saving money allows you to let your money grow so that you don’t have to take out a loan just to purchase an item. When your children see you working hard to save money and waiting patiently to buy a certain thing, they will understand how vital it is to practice delayed gratification.
The Money Wrap-Up
Childhood is the best time to teach financial literacy, but it is also the most challenging time. You cannot teach a child to be good with money with lectures alone. Instead, they need to hear, see, and do it. The more fun you can make it, the better!