By Anya Willis
Teaching your kids about money is as much a basic as teaching them how to read or count. Why? Because financial literacy is an essential life skill, a habit that is critical to later life success. At Dignity of Children® we believe it is never too early to start teaching children about the value of money and money-smart strategies.
Looking for some essential lessons to impart to your kids? Keep reading to find out.
1. Saving: A Critical Tool for Success
According to a study by the University of Illinois, 36% of young adults are ‘financially at-risk.’ The best way to prevent this with your kids is to start early. Saving is the most critical skill you can impart to avoid financial disasters down the line. Why? Because the earlier you start saving, the more money you have down the line. Illustrate this to your kids by explaining the magic of compounding and how much it pays to start early. Open a savings account in their name so they can start putting a little bit away each month and experiencing the power of high-interest rates themselves!
2. Tracking: The Name of the Game
Your children likely already receive money in different ways - from allowances, gifts, and odd jobs for family and friends. Help them keep track of it to know how much is going out each month and how much is coming in. Find a budgeting template (we love these ones by MoneyProdigy, made especially for kids) and help them input different elements on it. Not only is it a fun way to spend some time together, but tracking spending can be an eye-opening experience. It will help them spend more mindfully in the future, not to mention understand the actual cost of a dollar!
3. Impulse Spending: A Big No-No
The best way to illustrate the perils of impulse spending is to take a trip to the grocery store. Walk through the store and pick up the things on your list. When they reach for the box of cookies you don’t need or the colorful box of candy near the checkout, explain the importance of sticking to the list. You could then show them the final bill and differentiate between the actual cost and how much it might cost if you gave in to your impulse spending desires!
4. Entrepreneurship: A Way of Life
Ultimately, it all comes down to the entrepreneurial mindset. Raise your child to see the gold in each of their ventures. A monthly lemonade stand can become a viable source of weekly income, or a one-off lawn mowing favor to the neighbors can grow into a lawn mowing empire. By maximizing each of their experiences regarding earning and saving money, they’ll have a sound financial future ahead of them.
This will also set them up for later life experiences such as homeownership. Break down the basics such as getting a mortgage, researching available mortgage rates, and the best kinds of loans to take out (such as a conventional loan, FHA, or a VA home loan). Before you know it, they’ll be all grown up with intelligent saving strategies and a home under their belt!
5. Allowance: Money Management 101
According to CNBC, a basic allowance is a fantastic way for kids to learn more about money in a hands-on way. An allowance acts as a baseline to experience the basics of financial literacy, including saving, spending, investing, growing, compounding, and giving away. They’ll be able to share first-hand other lessons you teach them about impulse spending and tracking. An allowance is also an excellent way to teach them about ‘money pots', or little amounts meant to be set aside for specific purposes. You could get them started on their college fund or saving for the holidays. They could keep aside a pot each month for personal expenses or as a fund for toys and video games. The pots analogy is a great way to explain the segregation of money for different intents and purposes.
If you’ve ever tried teaching your kids about money and felt like you are in (way) over your head, we get it. We wouldn’t want to learn about the value of a dollar either when there are trees to climb and video games to play. That’s why integrating money lessons into daily activities is the way to go. Try to impart your hard-earned money advice through teachable moments - it’ll be sure to set your kid up for life.
Developing an entrepreneurial mindset at a young age is key to financial success down the line. At Dignity of Children, we transform educational environments by empowering young people and helping them build skills to succeed in the modern world. Check out our blog here or contact us at [email protected] for more information today.
