Teaching your kids money management skills can help them to establish good financial habits that will benefit them long after they’re grown. If you’re ready to start raising money-smart kids, here are some of the most important topics you’ll want to tackle.
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These are our top 3 most important money lessons for kids:
The concept of living within your means is one of the most basic tenets of personal finance but it’s something that still seems to be difficult for many adults to master. Teaching your children what a budget is and why it’s important to have one is the first place to start when it’s time to talk money.
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Having regular meetings to discuss your family finances is a good way to introduce your kids to the basics of budgeting. You don’t have to necessarily share all the details of your income and expenses, but you should make sure your children understand that the money you make goes towards specific things and that you should always aim to spend less than what you earn.
Allowance can be also a useful tool for teaching kids how a budget works. If your kids get a set amount of money each week, be proactive in helping them decide how it should be spent instead of just handing over the cash. It’s also a good idea to do the same thing with money they receive unexpectedly, like birthday or Christmas gifts.
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Setting up a jar system is a popular way to illustrate budgeting in action, especially if you have younger kids who are struggling to grasp the concept. When they get their allowance, they put a certain amount in a jar to spend, another amount to save and another amount to give. Make sure they get that once the money in the “Spend” jar is gone, it’s gone.
If you have teenagers, you can still use the jars but help them to break down their spending into specific categories. For example, they might want to spend a certain amount on clothes, entertainment or food. Have them write out a spending plan so they can see exactly where their money’s going. Teaching your kids how to make conscious choices about their spending helps them learn to prioritize needs versus wants.
Making Saving a Priority
Delayed gratification is something that people of all ages struggle with but it’s especially difficult for children to understand why they can’t get what they want when they want it. If you want your kids to grow up to be savers rather than spenders, you need to start building the savings habit early on.
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One of the best ways to demonstrate the value of saving is to have your child set aside money for something they want to buy. Just make sure that it’s not something too pricey since they could easily get frustrated and give up if they don’t feel like they’re making any progress. Help them figure out the total amount they need to save and then work out a time frame for reaching their goal.
For example, let’s say your child is trying to save up for a $50 video game and they get an allowance of $10 a week. If they put $4 a week towards their goal, it’ll take them about three months to save up enough cash. If they put away $6 a week, they’ll be able to buy the game in two weeks. This is a great way to show them how important it is to set goals and stick with them.
Teaching children how credit works and how to use it is one lesson you can’t afford to skip, especially if you have teenagers who will soon be on their own. Kids need to learn that buying something with a credit card isn’t the same as spending cash and that the cost of something purchased with credit can end up being much higher if you’re not paying off your balance in full each month.
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It’s also a good idea to discuss credit scores and what they mean when it comes to making major financial decisions, like buying a car or a house. Things like paying bills on time and not racking up a lot of debt can go a long way towards building good credit but it only takes one late or missed payment to drag it back down.
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If your kids are college bound, they should also be aware of what they’re taking on if they borrow to pay for their education. Student loan debt has surpassed the $1 trillion mark and it’s still climbing, leaving many grads struggling to survive financially. They need to understand how being saddled with debt can impact their finances for years after they finish school.
These are only the 3 most important money lessons for kids. Teaching your kids how to manage money isn’t something you can do in a day. It may take years for your kids to get the basics down pat but the sooner they start learning, the more sound their financial future will be.
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