Schools may teach our children how to identify and count money, but they don't provide a robust financial education for kids. That's up to you, and the earlier you give your kids positive experiences earning, spending and managing money, the more their financial skills will develop and mature. By the time they reach adulthood, all of that practice will prepare them to face the intricacies of adult money management on their own.
Teaching your kids about money doesn't have to be hard. In fact, every day offers moments that can help your children learn how to handle money, and the holidays are no exception. In fact, the holidays are a perfect time for children to practice balancing wants, needs and responsibilities against available financial resources.
Recognizing that they have the ability to perform a task that is worth something to another person—an employer—is a powerful confidence builder and life skill. Give your child concrete opportunities to choose to earn, and pay them with cash or a reloadable card that is theirs to use as they choose.
Encourage them to save every penny they earn by adding incentives—interest, for example. Exchange coins for bills or smaller bills for larger bills with a little extra added when they save it for a certain period of time. This way, your kids can learn that there is a good reason for not spending all of their money, and interest & dividends can make a big difference in growing savings.
We often end up giving our kids money for any number of activities and events. Often, that money is discretionary or “just in case” money that, if unspent, parents will be tempted to reclaim. Instead, when you give your child that $10 bill, explain why you’re giving it to them, but be sure to let them know that they can keep whatever they don’t spend. You might be surprised at how much they choose not to spend on impulse buys and instead save for what they really want.
The idea of loans, debt and interest can seem advanced, but that’s really where a child is headed when they ask for an advance on their allowance or pledge that they’ll pay you back for an impulse purchase. Explain to your kid that you can advance them the $10 that they’ve asked for but at a price—an extra 20 percent or $2, for example. It’s what banking and credit cards are all about, and it can be a key element in teaching them critical spending skills (as well as the dangers of overspending).
Children need to see that you have bills to pay and that you pay them on time. Many kids perceive mail as fun—until they realize that the envelopes in the mailbox hold bills and statements for goods and services that the family has already used. The same is true for email. Discovering just how many items comprise a budget and the sums involved can be a real revelation for kids. Let them see that you honor your responsibilities by paying for your quality of life — everything from car payments and insurance to the electric bill.
When they are old enough to make a steady allowance, you can even consider letting them sign up for that video game subscription or streaming platform where they can practice paying a bill each month in exchange for a service.
With the prevalence of fraud and identity theft, any piece of financial information has value. Among children, bragging or competing over financial status can be tempting. Teach your kids to protect their personal assets by keeping all information confidential, and that includes not only the money itself but also any personal information associated with it. Along with this lesson, you may also want to educate them on the many ways scammers and phishers will try to trick them into giving up their information.
Doing these few simple things may cost you a little money here and there, but you can view it as an investment in money you won’t have to spend later to bail an adult child out of financial trouble. You’re teaching vital concepts that are key to leading a productive life of financial independence:
The value of money and hard work
The importance of saving
How interest works when you’re making your money work for you
How interest works when you’re in debt and paying it off
How to evaluate whether acquiring something merits an expenditure
The responsibility, discipline, discretion and self-control needed to take care of your money each day
If you’d like to learn more about saving money for your children or would like to help them open their own savings account, the experts at La Capitol Federal Credit Union are here to help. We believe that providing financial education for kids is something we all need to do. Reach out, and let us help you get started.
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