Parents have a long list of things to teach their kids. And financial literacy ranks high on that list. However, most parents neglect to teach their children about money and personal finance.
According to a report by OECD PISA, most 15-year-olds struggle with financial literacy. The report found out that about 25% of these children could not make simple decisions on daily expenditure.
That’s a trend that must die. Parents ought to teach their children basic money skills. Teaching kids money matters from an early age helps them to make informed financial decisions in the future. They become good at saving, investing, and managing their finances.
The 7 Steps to Teaching Kids About Money
As a parent, there are many ways you can teach your kids important financial lessons. It doesn’t have to be hard. Below are some of the ways to give your kids a head start in the financial literacy realm.
#1. Teach Them Opportunity Cost
Opportunity cost entails foregoing the next best alternative. Essentially, it means if your child spends money on their favorite pair of shoes, then they would have to forego buying a pair of shorts that they like. That is, they have to choose to buy one thing at the expense of another.
Opportunity cost is a vital money lesson that every kid must be taught. It teaches them to cross-check their options and possible outcomes before making a decision. This way, they settle on well-thought decisions. Learning how to make wise money spending decisions is crucial in future business investments.
#2. Get Them to Save
Inculcate a saving culture from a young age. Whenever your child receives money, either as a birthday gift from family or friends or payment for some work done, let them save a portion of the amount in a home bank. It could be done in a 50/25/25 proportion. You can let them use 50% for fun, keep 25% for their needs, and save 25% in a piggy bank for future use.
Saving should be done with goals. Some saving goals could be to purchase a toy or video game. Having saving goals motivates your kid to save even more. Let your child identify their saving goals and figure out how much they will have to keep to achieve them.
Goals should be categorized as short term and long term. Financial experts advise that long term goals for children shouldn’t be more than six months. If they are too long, they will demotivate your kids. On top of the long term goals, let your kid set short term goals that they can achieve frequently. Hitting these goals regularly makes them have a sense of achievement and find joy in saving.
#3. Inspire Kids to Pursue Earning Opportunities
It’s not worth to teach kids about saving and budgeting money if they don’t know how to earn it. Learning to earn is vital, even for small kids. When children learn to make money, they become self-sufficient.
Inspiring children to work for their money can start simply by giving them an allowance for walking the dog, mowing the grass, or washing the family car. While these are simple tasks, they always inspire your kids to work hard for their own money.
You can also allow your teen to look for real jobs during their free time, especially during summer break. One of the best part-time jobs they can pick is freelance writing. Besides earning an income, becoming a freelance writer helps your kid to be a better paper writer and to improve in their school work.
#4. Be a Good Example
Findings from a study conducted by the University of Cambridge show that children learn money habits from as early as 7 years old. At this age, kids pick most, if not all, their parent’s money habits. You should, therefore, be careful about what you do with your money around children.
If you love to swipe with your card at the filling station or when you go out for a meal, then you should expect your children to learn to use credit cards more often. It is not a good behavior lest you make your kids be credit card victims and risk putting them into debt.
Always strive to be a good example and smartly manage your finances. Teach them the importance of setting financial goals and keeping track of expenditure. The result is that your kids will pick these positive lessons and become better financial managers.
#5. Give Smart Financing Lessons
One vital lesson kids should learn at an early age is expenditure. Teach your kids that before they spend on anything, they must determine whether it is a need or want. Needs are things that we require to survive, while wishes are the things we desire, but we can do without.
Teach your children how to differentiate the two. They should be ready to forego their wants so that they acquire their needs. While it’s not easy to make the kids understand that buying their favorite toy isn’t as important as paying the water bill, it’s usually worth the struggle. Teaching your teens about prioritizing needs over wants helps them to make proper financial priorities in the future.
Distinguishing between the two is usually difficult for kids. You can simplify your work by creating a chat with the needs and wants. You can equally read books on the subject together with your little ones. Most of all, learn to say no to some of your children’s wants, even when you can afford them. This way, they’ll learn that they can still do without the things they want and be contented with what they have.
#6. Allow Them to Handle Cash
The best way for teens to learn about money is by handling cash. Give your children a little cash to spend once in a while. Let them spend it, do some shopping, know its value, and do some calculations.
When you go shopping with your kids and ask them to pick things as you pay chances are, they’ll pick just about anything. However, if you set a given budget and let them have the cash, they are more likely to plan and keep track of their expenditure and only pick the things they need. Letting youths control their money helps them to be more responsible and conscious of how they use cash.
#7. Teach Kids the Noble Art of Giving
After you’ve taught your kids about earning, saving, and spending money, you ought to teach them the vital art of giving. Show them the importance of giving back to the community at a young age. Let them make contributions to charity, or help someone in need.
Your children should learn that we get money by engaging with others in business deals. We don’t pick it from trees or dig it from the ground, literally! Likewise, it should be spent to help other people and not just us.
If you don’t teach your kids about finances from an early age, they’ll have to learn it when they have the money. In most cases, these lessons are learned the hard way. They have to make some poor money decisions and grapple with losses before they become financially informed. No parent wants that for their kids. So start educating your kids about cash today to help shape a better financial future for them with defined by smart financial choices.