Kids as young as 5 years old can understand the importance of saving money, sharing with others, and spending responsibly. But it’s also a time when most kids are unaware of the consequences of bad money habits. They know that they should be saving their allowance or birthday cash for something later in life, but have no idea how important these early lessons will be down the road. Reaching financial literacy starts at home. As a parent, you are your child’s first teacher and role model when it comes to money matters. Your child is watching everything you do, listening to everything you say, and taking note of everything you neglect to mention. Get started today with these 10 tips on teaching your kid financial responsibility:
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Set a Good Example
The most effective way to teach your child about money is by setting a good example. If your child sees that you are living beyond your means, they will learn that they can do the same. As a parent, you must live with the consequences of your financial decisions just as your child will have to suffer the results of theirs. If you are overextended, your child will learn that it is okay to go into debt. If you are frugal and make smart savings decisions, your child will learn the value of being prudent. If you are impulsive and make spur-of-the-moment purchases, your child will learn that it is okay to make impulse purchases on credit.
Establish a Weekly Savings Ritual
The best way to teach your child the importance of saving money is by getting them started as early as possible. You don’t have to wait for your child to get their first job or until they’re old enough to open a savings account. By setting up a weekly savings ritual, you can instill the importance of saving money at a young age. Start off by having your child pick an amount to deposit into their savings account every week. The amount they save can be as small as $5 per week and they can deposit the money into a piggy bank, a savings account, or a jar full of change. The important thing is that they are putting money away each week and are beginning to develop a savings habit.
Talk About the Importance of an Emergency Fund
After your child has been saving money for a while, they will be ready to learn about the importance of an emergency fund. An emergency fund is a separate savings account designed to cover unforeseen expenses that may arise, such as a medical emergency, car repair, or a natural disaster. Most financial advisers recommend that families have 3-6 months worth of expenses saved in an emergency fund. You can use these figures as a starting point for explaining the importance of an emergency fund to your child. After they have saved enough money, you can help them open a separate savings account for their emergency fund.
Help Your Kid Build a Financial Toolkit
When your child reaches the age where they are earning their own money, it’s important to have a financial toolkit to help them make smart decisions with their money. Your child’s financial toolkit can include a variety of things such as a savings account, a budget, an emergency fund, insurance, stocks, and a will. Your child may not be old enough to open a savings account or buy stocks, but they can still have a financial toolkit and collect things that are important to them. Your child can build a financial toolkit by collecting coins, trading cards, sports souvenirs, stickers, or anything else they find valuable.
Make Your Kid an Offer They Can’t Refuse
As a parent, you want your child to want to save their money and develop a good spending habit, but that doesn’t always happen. Your child may be impulsive and make unnecessary purchases, go into debt, and waste their money on things they don’t need. When this happens, you can use an old trick called offer they can’t refuse. With this trick, you make an offer to your child that they can’t refuse. If your child has been spending too much money, you can make an offer that they can’t refuse by taking the money they owe and putting it into a separate account. When your child is old enough to have a part-time job, you can make an offer they can’t refuse by having them deposit their weekly earnings into a separate account.
Together, Review Your Child’s Assets and Liabilities
As your child gets older, you can work together to review their assets and liabilities. By this time, your child should have a savings account, an emergency fund, and a part-time job. By reviewing your child’s assets and liabilities, you can help them understand the importance of budgeting, paying off debt, and living within your means. For example, if your child has a car payment or student loan payment, you can help them understand that they have a liability. If your child has a savings account and an emergency fund, you can help them understand that these are assets.
Confirm That Money is Being Saved and Where It Is Going
If you want to be absolutely sure that your child is saving money and isn’t spending it on frivolous things, you can follow these tips to confirm that money is being saved and where it is going: – Ask your child to show you their bank account and where their savings are going. – Ask your child to show you their debit card and what purchases are being made. – Ask your child to show you the money they have saved in a piggy bank or coin jar. – Ask your child if they have any dreams or goals they would like to save for. – Ask your child if there are any charities or causes that are important to them. Your child can donate the money in their coin jar or piggy bank.
Conclusion
Your child is watching you every step of the way, taking mental notes on everything they see and hear. From the way you handle money and spend your dollars, to the way you treat others and make decisions. You can help your child understand the importance of financial literacy by following these 7 tips. You can set a good example by managing your own finances well and showing your child that you are responsible with money. Your child needs guidance and examples of good financial behavior to help them become financially responsible adults.
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