Financial literacy is a crucial skill for people of all ages. When it comes to learning how to be smart with money, the sooner you teach your children, the better. As parents and caregivers, it’s essential to teach children about money management from a young age. By creating smart money habits and imparting valuable lessons, we can empower our children to make informed financial decisions in the future. Here are five money lessons every child should learn.
#1. The Value of Money
Teaching your child how to earn, manage, and appreciate the value of money is one of the first steps toward financial literacy. Kids begin to understand how money works between the ages of six and eight. Start to familiarize your child with money early on by collecting coins, engaging in coin identification activities, and sorting coins by color and monetary value. Once your child is familiar with money and its value, you can start teaching them where money comes from. Most children believe that money comes from Mom or Dad, and while this may be true in some instances, they need to learn that money is earned. Provide opportunities for your child to earn money by assigning age-appropriate chores or tasks around the house.
#2. Savings Is Not for Spending
It’s good to acquaint your child with the habit of saving money from an early age. To a kid, being told to save money may seem pointless. Helping your child define a savings goal can be a great way to make the savings process more manageable for them. For example, if they want to buy a $25 toy, and they get $15 a week, help them figure out how long it will take to reach this goal. While saving twenty-five dollars for a toy now might seem silly, this habit will translate to saving for a car in years to come.
In addition to helping with saving money, your children will need a place to stash their cash. For younger children, this might be a piggy bank, but if they’re a little older, it might be a good idea to open up a savings account at your local bank. If you’re really wanting to impress money goals on your child, you can even open up a child-friendly debit card through FamZoo, gohenry, or Greenlight. These cards give you full control over your child’s spending. With the touch of a button, you can limit your child’s financial freedom, or deposit money into their account.
#3. Needs vs. Wants
Children should learn early on how to differentiate needs from wants. Help them to learn that needs are for survival essentials like food, shelter, water, gas, and clothing–while wants, on the other hand, are things that might bring us joy or pleasure like toys, sweets, or entertainment. This lesson can help your child prioritize their spending and avoid impulsive purchases. One way you can help your child learn to navigate needs versus wants is by having them make a list of wants and needs. Once they’ve made their list, have them draw a star beside each need. Another way you can help your child learn wants and needs is by pointing out items at the grocery store. These activities are simple ways to show your child items that are essential and items they can live without.
#4. Basics of Budgeting
Introduce children to the concept of budgeting to create smart money habits. Teach them how to allocate funds to set portions aside for savings, spending, and donating (or tithing). Encourage your child to keep track of their expenses. A great resource for your child’s budgeting is a downloadable Pinterest worksheet where you can write down expenses and take notes of spending. Another way you can track your child’s budgeting is by keeping their cash in separate envelopes. Label each envelope with “Save,” “Spend,” and “Donate” and put the cash in each envelope accordingly. When they receive money for birthdays or special occasions, teach them to ration out a percentage for each category.
#5. The Power of Giving Back
When teaching your child about money, it’s important to teach them about generosity and the act of giving back. Encourage them to donate a portion of their money or time to charitable causes they care about. Maybe even take an afternoon to volunteer together to show them where their money goes for certain charities. This lesson helps children develop a sense of moral responsibility and an understanding that the impact of money goes beyond just their personal needs.
Financial literacy is a lifelong process. It’s never too early or too late to begin teaching your children about money and equip them with the knowledge of wise spending habits. Teaching your children the value of money can help have a lasting impact on their future financial well-being.