Teaching Your Kids About Money
Do you ever wish you could go back in time and teach your 10-year-old self a few pointers on how to better handle money? Time travel is not an option (yet?) so there is not as much you can do to delete your past mistakes, but you can pass on financial knowledge to your kids.
We are slowly working financial literacy into our school curriculum, but that goal is still a far way off reaching at an adequate level. Until it is fully embedded in our education system, the job falls on you to teach your children what they need to know.
Teaching your kids about financial literacy at any early age sets them up to be confident and capable of managing their own finances. But it need not be intimidating to tackle as a parent, even if your own financial knowledge level isn’t that high.
Here are a few simple examples of what information you can and should be sharing with your kids:
Tip #1 – Explain Budgeting Basics:
You should sit down and create a family budget together. This exercise will likely help you just as much as it helps teach your kids. Learn how to apportion money between items you need and those that you want. You should make sure that budget includes allocating a certain percentage to short- and long-term savings.
Tip #2 – Look for Simple Lessons Everyday:
Receiving your annual mortgage statement or tax return (notice of assessment) should be taken as an opportunity to sit down and review it with your child to show how these things work. You need not fully understand them yourself but by even passing on a basic education, you are getting the ball rolling. Most kids will enter the adult world with no idea how a mortgage or taxes work and this needs to addressed before they leave home.
Tip #3 – Explain the Cost of an Item in Relatable Terms:
For example, you could explain that a new car will cost several years’ worth of food for the entire family. Or that the new $3,000 mountain bike they want to buy today would equal a nice used car when they’re older if they chose to invest the money instead.
Tip #4 – Use an Allowance and Birthday Money as Teaching Tools:
I’ve always liked the idea of any money that a child receives be spit between three jars. The first jar is short term spending money and they can spend it freely as they choose. Some will buy candy every week while others may elect to save it up for something bigger.
Jar number two is for longer term savings. The money in this container should have a specific goal attached to it such as saving up for a new bike or for a vacation, etc.
The third jar is for giving. This money should be set aside for donating to a charity or cause that your child selects which allows them to learn about philanthropy and helping others.
The amount that you put in each of the three jars does not need to be equal but another valuable lessons exists when you spend time deciding how much to put in each one.
Tip #5 – Pay Your Kids:
Most parents believe that their kids should have some regular chores assigned to them to help around the house. But don’t be afraid to pay your kids for doing extra work outside of their regular routine. This will allow them to learn to appreciate the hard work required to earn money. Money earned can go into the three jars discussed above.
When it comes to teaching your kids about money, remember that it’s a gradual process and that it’s never too early to start. As they get older, introduce them to more complex concepts and continue to develop their money management skills. I can promise that their future adult selfs will be better prepared if you do.