As parents, we understand the need for financial literacy for our children. But, where do we begin? What should be taught and when should it be taught? I’ll answer these questions in this piece by giving five techniques to help your children develop smart money habits.
The following suggestions and ideas cover a wide range of financial concerns for people of all ages and stages. I hope they’ll assist you in coming up with innovative approaches to teach your children about money. But before we get started with the advice, let’s define financial literacy.
1. Demonstrate good financial habits
Children are continuously observing and learning from others and the environment. As a result, modeling healthy money habits is one of the most effective strategies to develop financial literacy in children.
But what exactly does this imply? It entails, first and foremost, breaking the taboo of discussing money. Instead, demonstrate how you save, spend, invest, track, budget, and so on to your children. Discuss your finances freely and frequently, starting with the concepts in this essay.
Your everyday modeling of healthy money practices can help your children internalize these critical abilities over time. Your kids will gently and organically learn money lessons from you via regular encounters, which I call financial literacy by osmosis. It’s simple, straightforward, and quite effective!
My husband, our siblings, and I developed solid financial practices from our parents in this manner. (You don’t need YouTube videos, online courses, or parenting books.) Regardless of our personality or spending inclinations, we all grew up to be effective with our money.
Keep in mind, though, that perfection isn’t the goal. Sharing your financial blunders might be just as beneficial. This teaches your children that making errors is normal and not something to be ashamed of. They’ll also discover that mistakes can teach them valuable lessons that will help them succeed in the future.
2. Teach Your Children To Save Money
Saving money is one of the most fundamental money skills that children can acquire. It’s preferable to do this in a tangible, tactile approach with the smallest children. Picking out a piggy bank together and depositing money they earn, find, or receive is a fun way to do this.
A basic ceramic piggy bank is a good place to start for young children. Dropping coins in the slot, hearing the sound of coins falling in, and then picking up the piggy bank to feel how full it is is entertaining for children.
A translucent plastic piggy bank with a top that counts the coins dropped in is a good option for somewhat older kids. This is a great method for kids to learn about different coins and see their money increase.
3. Encourage your children to begin investing.
Your children will eventually be old enough to manage their own investments. You don’t have to wait till then to invest their funds. You may get them started with an investment account much sooner, possibly as soon as they get some extra money from a birthday or holiday.
Because underage children are not permitted to open and manage investment accounts, you will need to open a separate account for them and invest on their behalf. These accounts are known as custodial accounts in the United States and informal trusts in Canada.
Use the recommendations in the preceding section to teach your youngster how to invest in their account once it’s been opened. They’ll be able to see their investments grow over time (while also building their confidence in investing).
They will be legally able to manage their investments after they attain the age of majority. This may appear hazardous, but you can relax because your child grew the investments alongside you.
Your child will be more likely to care for the investments once they have complete ownership because of the hard work you and they have put in over the years.
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4. Go Shopping as a Group
This appears to be completely counterintuitive, doesn’t it? How can taking children shopping teach them about money management? Unless your children intend to live off-grid in a cave, they will need to spend money at some point. So why not educate them the proper way?
Taking them shopping with you is one of the best ways to accomplish this. You can then incorporate financial literacy lessons by demonstrating how you spend less on things you need to buy. Here are some suggestions:
Take Advantage of Savings
Buying items on sale or at a discount is a great way to save money when shopping. This includes using apps like Flash Food to purchase heavily discounted groceries or shopping clearance racks at clothing stores. After that, do the math with your children to show them how much money you saved thanks to the discounts.
5. Promote Delayed Gratification
I am a firm believer that being able to accept delayed gratification is essential for financial success. Children learn to:
- Develop a long-term mindset through delayed gratification.
- Make sound financial decisions.
- Negotiation is common practice in several parts of the world, and not simply for a higher desired salary.
- Avoid impulsive purchases.
6. Talk about financial news and current events.
Our children are bombarded with information from all sides now more than ever. They are all too easily drawn into the latest fad, trend, or tactic.
Our children will be exposed to financial news and current events whether we like it or not, so why not use these events to increase their financial literacy?
- You can do this by watching what they’re eating.
- Changing the narrative’s tone for the better.
- The headlines are being broken down in age-appropriate ways.
- Providing explanations for the whys and hows of the stories.
7. Show Your Children How To Avoid Debt
A mountain of debt can be nearly impossible to overcome. It can be especially crippling if the debt is incurred early in life and the interest accumulates. You can help your children avoid situations like this by:
- Defining credit cards and loans as not being free money. They will have to repay it with interest one day.
- Emphasizing the importance of making full and timely payments.
- Demonstrating how compounding works against them, especially with high-interest debt (as most credit cards have).
- Discussing how some types of debt (mortgages and student loans) are unavoidable while others are mostly optional (credit cards and car loans).
8. Encourage Your Children to Begin Investing
Your children will eventually be old enough to manage their own investments. But you don’t have to wait until then to invest their funds. You can open an investment account for them much earlier, perhaps as soon as they have some extra birthday or holiday money.
However, because minor children are not permitted to open and manage investment accounts, you must open a separate account and invest on their behalf. These accounts are known as custodial accounts in the United States and informal trusts in Canada.
They will be legally able to manage their investments once they reach the age of majority. This may appear risky, but you can rest assured because your child worked alongside you to grow the investments.
Because of the years of hard work you and they have put in, your child will be more likely to care for the investments once they have complete control.