Every new year, people make many resolutions to change and improve many things in their lives. On the list, more often that not, is the resolution to gain financial freedom. It’s a new year, and if this is a resolution that is on your list, take the journey with your child because it is never to early to teach them about money management.
In an interview with MadameNoire, Sarah Ryan, Senior Manager, and Strategic Partner Relations at SECU Maryland stated that, “Kids as young as five years old are already able to understand the basic idea of saving versus spending. Teaching kids basic financial literacy at a young age sets an early financial foundation and provides them the opportunity to learn, develop, and strengthen their life skills to become financially capable adults.”
Here are five simple ways according to Ryan and other experts on how to teach kids money management.
1. Explain the correlation between hard work and purchases
Talk to your kids openly and honestly about how much things cost and how hard you work to purchase what you all have. Younger children may not realize that that new Xbox is more expensive than they realize. Having these open and honest conversations will teach them the value of purchases and hard work to make them.
2. Discuss “wants” first, “needs” after
Discuss your households “wants” vs. “needs” with your children and make sure that they understand that once basic needs are met, i.e. food, shelter, clothing, then, if there is money left over, fun purchases, such as new toy, luxury clothes, etc., can be considered. Teaching them that trying to “keep up with the Joneses” isn’t always a sound financial move.
3. Teach savings and investment
Now is the time to purchase a piggy bank and put money in it every time you get an opportunity. For younger children, they will get the idea of how savings work. They can watch their savings grow before their eyes. For older children, open up a savings account for them and have them deposit a portion of allowance, birthday money, etc. Or, go a step further and consult a financial planner and look at starting a stock portfolio. They too will be in awe of how their money will grow.
4. Credit responsibility
If you have an older child, they can be an authorized user on your credit card at 16-years-old. This will not only jump-start your child’s credit history, but it will also teach them how to use the card responsibly. This will unquestionably come in handy when it is time to apply for credit on their own. But of course, make sure that you lay down the rules of credit card users, and investigate if your card allows you to set limits.
5. Give them an allowance
Providing your child an allowance helps them understand the value of a dollar and when it’s gone, it’s gone. This will give them real life experience on spending their money on things that they want.
What other tips do you have on teaching kids money management? Sound-off, we want to hear from you!