Teaching Kids About Money at Any AgeBy Katherine M. Dean, CFP® | July 11, 2019
Children inherit a lot more than genetics from their parents. Our personal relationship with money is something that comes into being at a very early age. In fact, a team of British researchers found that our money habits are usually formed by the time we turn 7.
Kids are little sponges that absorb whatever is modeled to them; for better or for worse. Showing our children how we use money as a tool to support our values is the first step. The next is giving them hands-on practice so they can put the idea to use in their own lives. As Benjamin Franklin famously said, “Tell me and I forget. Teach me and I remember. Involve me and I learn.”
It’s never too early to empower children with basic financial literacy skills—then keep the ball rolling as they grow and mature. It’s little wonder that high school graduates in states that require financial education are more likely to have higher credit scores as young adults.
In the spirit of education, here are some actionable ways you can teach kids about money at any age.
Toddlers and Little Ones
Toddlers can’t be expected to understand something as abstract as budgeting or investing, but you can certainly begin planting the seeds. This starts with introducing them to the financial basics. When you go to the store together, they see you using a debit card or cash at the register. Use these words with them to help little ones understand how everyday transactions work. We earn money from our jobs, then we use that money to buy things that our family needs.
Take it a step further by bringing some pretend play into the mix. A simple game of “grocery store” using make-believe money creates an easy, fun way for young children to understand what money is and how we use it. Child development experts say humans are wired to learn best when we’re engaged, the information is meaningful, or we’re interacting in a social context. For toddlers, pretend play ticks all these boxes.
Patience is usually a challenge for children, and it’s also something that carries over into our financial lives. In other words, there are plenty of teachable moments to be had. Demonstrate to your school-aged kids how you yourself have to wait before buying something you want, especially if it’s a big-ticket item.
Before purchasing, say, the latest gadget you’ve had your eye on, talk about how you’ve worked it into your budget ahead of time—whether you’re cashflowing the purchase from your regular paycheck, saving up for it bit by bit, or using a cash windfall like a work bonus to cover the cost.
Drive the message home by letting them practice this concept themselves. Whenever money comes their way from allowance or gifts, encourage them to split it into three different categories:
- Spend: This is fun money they can spend now on whatever they like.
- Save: This portion is separated out to save up for a more expensive item, game or experience.
- Give: Divvy up a small chunk for donating to a cause that feels close to your child’s heart. This is a great way to teach compassion and empathy.
High school kids are one step away from leaving the nest and living on their own. It’s time to lay the foundation for the smart financial habits they’ll need as young adults and beyond. Most teens are earning their own money from an after-school job. Help them understand the nature of their income and their expenses, focusing on any bills they can begin covering themselves. From there, help them create a simple budget so they can begin managing their money independently.
It’s also a prime time to begin teaching them about credit before they’re out on their own and receiving credit card offers. Choose a bigger-ticket item they really want, like a new cell phone. Then do the math with them. How much more would they pay over the long term with a credit card versus waiting until they’ve saved enough to buy it outright, interest-free? Average credit card APRs are currently 16.91 percent, which should make a sizeable dent in a teenager’s earnings. Is that a trade-off they’re willing to make?
The truth is that we never stop learning about money and growing financially—even as adults. As a longtime financial advisor, I’ve been working in the trenches long enough to know that the most important ingredient, no matter your age, is your mindset. Opal Wealth Advisors zeroes in on all your family’s needs, including prepping your kids for financial confidence and success.
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