The importance of teaching your kids about money at a young age cannot be overlooked. Its crazy to think about but habits and ideas about money start to solidify as young as age seven. Teaching your kids about finances at a young age can set them up to have a healthy relationship with money for life. Plus, we all know that ignorance really isn’t bliss when it comes to money.
To start, a good rule of thumb is to set up a saving, spending, and giving fund. Separating saving and spending can help kids learn budgeting. In addition, giving can teach them strong values and selflessness.
Here are some more things to consider when teaching your kids about finances.
Consider giving your child an allowance. There are pros and cons to giving an allowance so that will have to be up to what is right for your family.
- Makes children responsible for their own money and to deal with the consequences of how they spend it.
- They know the reality of how long it can take to save money.
- It can empower them to want to save, manage, and budget their it to get what they want.
- Makes more work for you and takes more money out of your budget.
- More battles to fight on how much they get or how long it takes them to save.
- Lets be real – they might just lose it.
- According to T. Rowe Price’s 13th Annual Parents, Kids and Money Survey here are the average amounts paid per week:
- $5 or less per week—14%
- $6 to $10 per week—22%
- $11 to $20 per week—35%
- $21 to $50 per week—22%
- $51 per week—7%
- It is common to pay your kids $1-$2 per week for each year of age. In general, a good time to start giving an allowance is around age 5 or kindergarten.
- Make sure you have a solid emergency and savings fund before you think about giving your kids an allowance.
Follow up with your kids after they spend their money.
- For example, ask them if they are satisfied with their decision and what they might want to do in the future.
- Continue to look for teaching moments every time they receive or spend money.
Be age appropriate while teaching kids about money.
- For young children (around 3 years old)
- Have them give the cashier the money when they get a special toy or food item. This lets them know that money is transactional and is a fundamental concept that can be built on later.
- Start a piggy bank to help show the importance of saving money. Saving money teaches children control and delayed gratification. In addition, make sure to reinforce how important saving is both verbally and by example.
- For elementary school age
- This is a great time to start using games to teach kids about finances. For example, The Game of Life and Monopoly are great as well as the vast availability of online games.
- Reinforce the importance of saving money and introduce some new ways for them to earn more money.
- For teenagers
- Start the conversation about investing and its risks and potential rewards. Teach your kids about the difference between savings accounts, CDs, and Money Market Accounts. To begin, you could start a Roth IRA and possibly put some of their saved money in a Money Market account.
- For young children (around 3 years old)
Share the value of giving from a young age.
- Show them the impact that giving to others can do and why it is important.
- Donating to charity and buying a friend a gift are just a few things you can do to give to others.
- Lead by example. Show your kids that you think it is important by donating to charities or choosing the charity together.
Practice what you preach.
- Make sure to model good behavior with your own finances. Kids are more likely to learn from what they see versus what you are trying to teach them.
- Kids pick up on their parents being stressed about finances or the scarcity of money. Show them that you are making smart saving and spending decisions and that you are not spending more than your means.
- Find teachable moments when you are doing your own budgeting, paying bills, or putting money into savings.
In conclusion, one of the most important things you can as a parent is to teach them the fundamentals of being an independent adult. Basic budgeting for spending, knowledge about saving, and teaching the value of giving back goes a long way in adulthood. The key is to lead by example and to continue to find teachable moments throughout your child’s life.
Did you know, its financial literacy month!
Check out some of the resources we have available to our members here. Check in with your own financial education and literacy by visiting MoneyEdu, a free resource for our members.
Here are some other great resources to check out:
- Guide to Allowances and Kids
- How to Teach Your Kids Good Money Habits
- Fun Ways to Teach Kids About Money
- How to Teach Young Children About Finances