When your kids see you visit the ATM, a bank teller, or the cashier at a supermarket and receive money back, they may not understand where the money comes from. Children are never too young to teach them financial skills, and even toddlers can understand the relationship between money and objects. Explore some ways you can lead by example and teach kids to manage money.
Image via Flickr by Michael Covel
Parents are the top influence on children’s financial habits. Turn everyday shopping into teachable moments. Why do you buy one brand instead of another? Teach that price isn’t the only reason, but quantity and quality count, too. Children grasp money concepts by observing how their parents handle bank accounts and money matters. By age 7, most children money’s habits are already set.
Let children learn good habits by teaching them to handle their own money. Whether they get an allowance or receive money on special occasions, kids learn best by doing. Teach them about budgeting and letting them see that you have enough money to buy one toy, but not two, for example.
Teach children delayed gratification by giving them an example they can understand. Do you want to buy a store-bought frozen pizza or make a fresh one at home? While making the food at home takes longer, the taste will be better than a frozen one. Saving up for an item your child wants is better than settling for a less expensive one now.
From the beginning, teach children to track where the money goes. Use a notebook or a computer spreadsheet to teach children to record their money. An old file folder or small box offers a convenient receipt holder for kids. These actions are ways you can teach them skills for balancing checkbooks later in life.
Explain to your child about savings accounts and how interest works. Encourage savings with the three-jar system. When your child receives money, divide the money equally among three jars. Label the jars, saving, spending, and sharing with the less fortunate. Once your child saves a small amount, open a savings account that pays interest. Learning how interest works for and against you is an important concept.
Enforce the idea that everything has a price. When your children spend their own money on items, make them pay for their purchases. Your children can clearly see the money they have been reduced as they pay for objects or services. Let your children decide how to spend their own money and teach them about prioritizing. Having a limited amount of money can help your children decide what is most important to them.
As children become teenagers, they should take on more fiscal responsibility. Let them pay for their own gas or cell phone. Making tough decisions about what to spend is part of growing up. Is it more important to buy new shoes or put gas in the car? The valuable life lessons you teach them now can help your children grow to become responsible adults.