Teach Financial Literacy to Children with These Tips
As parents, it is our responsibility to prepare children for adulthood. One aspect of this is teaching financial literacy to them. When your kids know how to manage money well, they may be less dependent on you financially when they become adults. In addition, they may be in a better position to look after you in your later years when you're no longer able to work. Here are some ways to teach financial literacy to children.
Teach the Difference Between Wants and Needs
Too often, parents do not set the best example of distinguishing between wants and needs. If you want your children to manage money right, this is a lesson that they must learn as soon as possible. If your child asks why you're not buying the latest video game set for him, say that it is because you have to use the money to pay for the things the family needs first such as groceries, utilities, and the mortgage. After those things are taken care of, then you might purchase the video game with the money that is left to spend.
Discuss How Credit Works
Your kids will likely use one or more credit cards as adults, so it's important that you teach them how they work. They need to know that a credit card is not free money, but it is actually a loan that you must pay back.
Talk about the credit report and score and how they are essential in obtaining home loans, getting a job, and getting a business loan if they need funds for a new venture. Show them how to use credit cards properly and how to read a credit report. Tell them that they should have emergency savings so that they won't need to rely on credit cards to get by financially.
Mention that credit cards have limits on how much you can charge and that there are consequences of not paying on time.
Show Them Your Budget
If you have a budget, sit with your kids and show it to them. This is important because your kids need a realistic view of how much it costs to survive in the real world. Show them how much you pay for the mortgage or rent, utilities, groceries, home repairs, your car note, and clothing for the kids as well as insurance costs.
When you do this, the children will know more about what to expect when they move out on their own. You can go a step further and discuss the average cost of living in your city if your children are teens.
Talk About Savings
Many kids don't see the importance of delayed gratification, so parents need to teach them early on.
Open a savings account for them and require that they use part of their allowance for savings. Talk about why saving money is essential for financial stability. You can mention that savings help you during emergencies, and how saving money reduces the need for personal loans, which keeps you debt-free.
As your kids get older, give them an allowance each week. They should put part of the allowance in the savings account you set up for them, and then they can use the rest of it as they wish. If they use it up before the next allowance is given, don't give them extra money. This teaches them that with the next allowance, they need to make wiser spending choices.
Cover the Consequences of Debt
Debt is a reality for many families, and you want to warn your kids about the consequences of poor money management. Talk about how excess debt hinders their long-term and short-term goals such as getting married, starting a family, starting a business, buying a home, saving for retirement, traveling, and even financially preparing loved ones for their deaths.
If you are currently getting out of debt, discuss the mistakes you made with money and what you learned from them.
Give Them Frugal Living Ideas
Your children need to learn how to live below their means, and frugal living may be key to doing this. Some good ideas for frugal living include:
- Buying groceries, toys, and clothes primarily on sale or at thrift stores
- Eating or cooking with leftovers
- Meal planning for the week ahead
- Not using ATMs that aren't affiliated with your credit union
- Reusing and repurposing household items
- Taking care of things you have
In conclusion, when you teach financial literacy to children, they may be prepared to handle finances like mature and responsible adults when they grow up.
If you need assistance with opening a savings account or checking account for your child, contact us. We are here to help you – and your children – get on the right track financially and achieve long-term financial goals.