As parents, we all want to protect our kids from the “real world.” Because of this, many parents make the mistake of not teaching their kids about money and finance. This has led to a generation of kids who lack a real understanding of how to manage money. According to the JumpStart Coalition for Financial Literacy, only 26% of 13-21-year-olds surveyed said that their parents taught them how to manage money.
Many parents want to teach these skills to their kids but aren’t always sure where to start.
If you’re looking for ideas, here are five ways to teach your kids about money that are easy, fun, and will help you turn them into financially responsible adults.
1. Things Have Value
Helping kids understand that things have value is an important part of their financial education. One way to teach them this lesson in a fun way is to ask them questions when you take them shopping. Ask them if they can tell you the value of certain items and then ask them to help you figure out how much it would cost to buy more than one.
Another great idea is to give your kids control over a small part of the budget at the supermarket or a farmer’s market. They’ll learn to make choices about what to buy by asking questions and understanding that they need to be responsible for their part of the budget. At the end of the shopping trip, let them look at the receipt and encourage them to ask questions.
2. Saving Add Ups
The trusty piggy bank is still one of the best ways to teach kids about money. Create three jars labeled “Saving,” “Spending” or “Sharing.” Every time your child receives money, whether it’s an allowance, a gift, or money earned doing extra work around the house, have them divide the money between the three jars.
Let them use the spending piggy bank for small purchases that they may make from week to week. Money in the sharing piggy bank can be given to charity, or to a cause that the child finds important. The savings piggy bank should be for more expensive items that might take more time to purchase.
You can also teach your child about the value of interest. At the end of every month, ask your kids to show you how much money they have in their saving’s piggy bank. Once you have done that, provide them with interest (say 5 cents for every dollar). Make it clear that for money to earn interest it needs to have been left in the savings piggy bank for a full month.
3. Credit Cards Aren’t Free
Too many kids see credit and debit cards as detached from reality. They know that mom and dad swipe the card and can seemingly buy anything. Instead, take the time to explain to kids how credit cards work. Explain how the money spent must be paid back over time and show them how the credit card companies charge interest for purchases. This is a great way to take the lessons learned from the piggy bank and take those lessons to the next level.
4. Learn from Mistakes
Kids should never be allowed to think that their parents will bail them out if they make a financial mistake. While parents can help their kids, they need to understand that there are financial consequences to their actions. You don’t have to take away their entire allowance, but they should understand that their allowance may be reduced or suspended to help pay back their debt. As an alternative, they may need to do extra work around the house to make up the difference.
5. Lead by Example
Teaching your kids to be financially responsible is important, but it’s even more important to show them what it means to be a financially responsible adult. As parents, you can set the example by maintaining a household budget, spending and saving responsibly and not carrying extra credit card debt.
If you want to learn more valuable lessons to help your kids to be financially responsible adults, read our free guide.
If you want to learn valuable lessons in budgeting and managing your credit card debt, call DebtHelper.com at 800-920-2262, or schedule a free credit counseling session.