Parents often lament that their kids do not understand the value of earning and spending money. However, they often forget their role in teaching their financial hygiene. In many cases, today’s kids are not used to the idea of investing. Even worse, they think investments are a waste of time as it prevents them from living in the “now”. As a result, children fail to develop good money habits and this continue well into their adult life.
While it is great to focus on today’s happiness, delayed gratification and thinking about tomorrow are cherished traits that must be sharpened in today’s kids.
Your children should be able to understand the concept of money and investment as early as possible during their childhood. Money management is a survival skill that is not taught in our schools. You, as a parent, should be able to teach your kids how to save money and create wealth for the future.
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If you are wondering how you can do that, we got some tips on how you can teach your children the value of money:
1. Give them a place to save
Before you discuss the meaning of money or the importance of saving, you need to provide them a place to hold their savings. For young children, this could be as simple as a piggybank. For older children, you may create their own checking account. The point of this is to teach your kids about ownership and responsibility. They can consider this their own and take more accountability over their money. The progress they make in saving money can encourage them to save even further.
2. Give them a goal
Once they have a place to save money, it is time to give them a savings goal. Children need encouragement for saving money. You can give them a target based on what they want the most. For instance, if your kid wants a $100 video game and you are giving an allowance of $10 a week, help your kid understand how much longer it would take to achieve this goal. In addition to teaching them about savings goals, you are also teaching them the value of delayed gratification.
3. Discuss needs vs wants
Teaching them the importance of needs vs wants is a critical aspect of building good money habits. Help them understand their basic needs as food, shelter, clothing, education, etc. Other things they desire like videogames, toys, candies, gadgets, etc., are all “wants.” When discussing the different aspects of money, it is important that you entertain questions from them about money management and you should be able to answer them right away.
4. Create a way for them to earn their allowances
Many households already have a system of allowances in exchange for household chores. This is a great idea to teach your kids the importance of labor and its benefits. A system of rewards is also a great way for children to gain more responsibility and develop into money-conscious adults. When doing this, make sure not to overwhelm your children with hard labor. You can start with something as simple as making their bed every morning, cleaning their room, feeding the pets, etc.
5. Provide allowances in denominations of large bills
When giving them their allowances, it is better to pay them in denominations of large bills. For instance, if their weekly allowance is $20, give them a $20 bill instead of ones and twos. This prevents them from spending their allowances on trivial expenses like candies. Even on a psychological level, bigger bills discourage them to break it up for a $1 or $2 expense. You can ask them to save the money for later and use it for a new pair of shoes or the toys they want.
Even on a psychological level, bigger bills discourage them to break it up for a $1 or $2 expense.
6. Give incentives for saving
Delayed gratification can be quite hard for young children to practice. However, you can offer them some incentives to meet them halfway. For instance, if your child is saving for a $200 bike, you can motivate them by offering to pay $100 after your child reaches the $100 milestone. This is especially helpful if you are finding it difficult to keep your kids motivated about saving money.
7. Teach them about investing
This is one of the often overlooked money habits by many parents. While saving money is great, keeping it idle in the bank account will only make it lose its value. Investing is a great financial habit often found lacking in many people across the world. By starting young, you can teach your kids the power of compounding and how to grow money with minimal effort. You don’t have to make this a complicated process. Just start them by showing how to diversify their money and how to get returns on specific investments. You can also establish a mock portfolio to show them how their investments grow over time.
8. Be a good role model
Kids imitate what they see. The habits they develop at a young age will continue throughout their lives. This is why you need to practice what you preach. You may talk about money, investments, and savings all you want. However, if they see you wasting money on frivolous things, that’s what they are likely to follow when they become an adult. You need to take responsibility and play the role of a money-conscious parent.
Money and savings are not something that can be learned by children in just one sitting. This is a continuous process that must be done periodically without fail. You should be patient when you teach your kids about money management and emphasize the value of money to all their activities. Children will learn this easily if you are patient and consistent in guiding them and encouraging them in this endeavor.
By laying the foundation of good money habits from a young age, you can help your kids transform into wealthy, successful adults. The financial responsibility of your kids is in your hands. Direct them to a bright future by following the tips listed here.
Check out my article on the 6 Common Money Mistakes to Avoid.
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