Financial responsibility is a necessary skill for adults. However, since building money management skills is a lifetime journey, you should start teaching your kids at a young age.
Start with the classic piggy banks and budgeting, and gradually introduce your young ones to other money concepts as they grow older.
How To Teach Your Child Financial Responsibility
This article covers ten essential money lessons to teach your kids.
1. Help Them Organize Cash With Piggy Banks
Kids often find it easier to understand the concept of money when working with tangible objects. Hence, one of the best ways to introduce them to financial responsibility is to help them organize the cash they receive in multiple piggy banks.
Instead of using only one piggy bank for savings, which is the classic approach, set up at least three piggy banks. You can designate each one for specific purposes such as savings, spending, giving, or any financial goal.
When your kids receive cash from their allowances or gifts, encourage them to separate their money into the piggy banks.
2. Teach Them About Budgeting
When your child understands that money serves multiple purposes, you can teach them about budgeting.
Tell them the importance of setting aside specific amounts for different spending categories and why following a budget is essential.
As much as possible, you want them to realize that budgets are a crucial stepping stone toward financial success and should not be ignored.
3. Give Them A Strategic Allowance
While kids typically see allowances as money to spend freely, try to encourage your kids to view allowances as earned income that should be used to pay for expenses.
Every time you hand over their allowances, make it clear that you expect them to manage their money responsibly. Guide them into creating a reasonable budget, but also allow them full control over how they spend their money.
If they fall short of their budget, create consequences instead of just giving them more money. For instance, make them do chores for extra cash or loan them amounts that must be repaid by their next allowance day.
4. Teach Them About Wants Vs. Needs
Help your kids distinguish between their wants and needs and why they should prioritize the latter.
You can start by teaching what basic needs are — such as clothing, food, and shelter. Let them know that all the extras — such as movie tickets and toys — fall under their wants.
5. Encourage Them To Save For Future Purchases
It may be tempting to cover every significant expense involving your kids. However, letting them be involved in saving for both small and large purchases can be beneficial.
To help them reach the goal faster, consider increasing their allowances or letting them earn extra through chores. However, resist the urge to do all the work for them.
6. Teach Them About Investing
Teach your kids the power of investing money, starting with concepts such as compound interest. You don’t necessarily need to explain complex investing formulas, but you can educate them on how money can grow over time through investing.
Even for adults, investing is a difficult concept. So, don’t expect your kids to learn it overnight. Consider sharing your own investment strategies along the way.
7. Show Them How Credit Cards And Debt Work
Americans now collectively have more than $1 trillion in credit card debt, and interest rates are approaching 20%, an all-time high.
One of the best ways to ensure your kid doesn’t fall into excessive debt is to show them how credit cards work early in life. Teach them what credit cards are, why they exist and when it’s best to use them, addressing both the pros and cons of the credit system.
8. Teach Them The Importance Of Giving
Once your kids know more about spending, saving, and investing money wisely, remember to teach them the importance of generosity and giving to others. Let them choose the people they want to show appreciation to through gifts or charities they want to donate to.
9. Open A Bank Account With Them
Open simple savings accounts for your kids before they’re old enough to work part-time jobs. Having a bank account will prepare them to manage their future finances and instill early habits of financial responsibility.
10. Make It Fun
Lastly, but perhaps the most important tip is: Don’t forget to make money lessons fun for your kids. Whether you have a young child or a teenager, everybody learns better and faster if you make it enjoyable and exciting.
Avoid using abstract lessons alone. Some of my favorite activities are working with real cash. I pretend I’m a bank by loaning my kid small amounts and teaching him about investing using interactive games.
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