It is never too early to start teaching your family about financial literacy. According to a study from the University of Cambridge, children create money habits from as early as seven years. At this age, they are very observant of how their parents manage their finances and make money transactions.
Thus, it is up to the parents to ingrain financial wisdom to their kids, preferably from a very young age. You can start by teaching them how to count money and exchange money for goods or services. You can also ask them to give their opinions before you make a purchase.
Here are some tips parents can use to teach their family about finances.
Allowances
Before you start giving your kids an allowance, begin by introducing them to what money is and its value. Explain to them how you use the money to get various products and services. Contrary to popular belief, it is not always evident that they understand what is going on when they see you paying for things. An allowance assists them in understanding further how money works. Here is a list of some money skills children acquire by giving them an allowance.
Basic budgeting skills
Allowances aid in teaching children how to budget from a young age. Encourage them to make goals for their money and how to differentiate what they need from what they want. You can also show them how you budget, like when you do your weekly grocery shopping. However, be sure to start small to avoid confusion.
How to spend their hard-earned money
When children earn their allowance from completing simple chores around the house, they become more conscious about their purchases. As parents, it is vital to explain to children that money is limited, and they must make wise decisions when it comes to spending. Once they spend their earnings, they will not have any more to spend.
How to save
People of all ages have a hard time understanding the concept of delayed gratification. You have to wait to buy something you want, especially if it costs a lot of money. Kids need to realize that to buy something they really want, they have to save to buy it. Similarly, they should appreciate that saving does take time.
Encourage your children to set financial goals as early as possible. Take them through the entire process and create a program that will help them achieve their set goals. You can also use three jars, one for saving, spending, and sharing, so that every time they earn some money, they can divide it equally among the three jars.
Give your children the responsibility of managing their bank accounts
By the time your children are teenagers, you should set up a simple bank account for them to take their money management skills to the next level. Take your child to the bank so that they can see the entire process. Additionally, this is the ideal opportunity to teach them more advanced financial concepts. Some of these concepts include how credit cards and ATM cards work, the concept of compound interest, and also about loans.
You can teach your child about credit score and how credit performance affects their eligibility for loans. Discuss the factors that affect such eligibility, and also do not forget to talk about mortgages, bankruptcy, and how a bankrupt person can obtain a loan. For example, you can use a scenario where an individual gets a VA loan after bankruptcy to secure a home for his family. By the time they are 18 years, they should have a basic understanding of all these concepts to make wise financial decisions.
Set an example for your family
Generally, parents influence their children’s actions and personality immensely. Kids tend to copy what they see their parents do, and the same applies to finances. Thus, you must lead by example when making decisions about your finances. Do not lie to them about money, as this sends a wrong message.
If you want your children to make better financial decisions in the future, you have to do the same as well. Set your financial goals and follow through. If you want them to be money-savers, you have to be one too. You can even decide to save for something you both want together.
Teaching your family about finances is not an easy task. It will take plenty of time, effort, and dedication, but it is worthwhile. Begin the journey to financial intelligence with your family as soon as possible, as it is a crucial part of becoming successful in life.