At one time, kids didn’t have to worry about going to university or owning a home. Education was cheap. Mortgages were affordable. We also had time to learn from our money mistakes. But, now with the increased cost of education and the increased size of mortgages, not to mention access to easy credit, we need to teach kids about money management starting from a young age.
Sadly, it is unlikely many kids will be learning one of the most crucial aspects of adult life at school this year – financial management. Kids need money skills more than ever if they are going to achieve financial stability and freedom.
Here are some simple and effective ways you can help your children, grandchildren or important young person in your life become more comfortable with money. According to studies, children as young as 3 years old can grasp financial principles such as spending and saving – so you can definitely start to teach kids about money early!
1. Explain Needs versus Wants.
An essential skill to teach kids at a young age is the difference between a need and a want. There are so many things today that have slipped into the “need” category when, in fact, they are “wants”. For example, many of our technology purchases have become needs when, in most cases, they are a want. There’s no better way to teach your kids the value of money than to have a conversation with them about needs and wants. An easy way to explain it is simply saying this: needs are the things you can’t live without – our home, electricity, food. Wants are everything else – gadgets, toys, more clothes, etc.
Educate your children on how to differentiate the two, and how we should apply the “need” or “want” test in daily life when making purchases.
2. Set Saving Goals.
A good way to educate your kids on the value of money is to encourage them not to spend it.
If you give your child or grandchild an allowance, encourage and help them to save some of their pocket money for the long term – never to be touched. This savings goal is separate from the short-term saving for their latest want, or the money they may spend daily. This is a good way to teach them that all the money that flows in doesn’t have to flow out.
You can also help them set saving goals and challenges. For added incentive, you could agree to match what they’ve managed to save if they reach their target. Encouraging them to save will help create a lifelong savings habit that just might make them a millionaire at an early age. Cheers to that!
3. Create Challenges.
When you’re out shopping with your kids, make spending smartly a game. For example, set a challenge whereby you have to keep your grocery bill under $200. Encourage them to seek out the best value products available, and roughly calculate the shopping bill as you go along (this is good for mental math skills too!). If you manage to keep the bill within the set budget, reward yourselves. But if you miss the target on your spending versus budget, don’t be too hard on yourselves. If you’re within 10 percent of your goal, say you achieved your goal. They’ll be much more eager to help you next time, and they will follow your example when they begin these errands for themselves. This is a great way to teach kids about money.
4. Talk About Boring Bills.
Normally kids get to focus mostly on their wants. It’s an effective method to help your children and teens understand how much “living” actually costs. Go through and explain your household expenses and how much things like food, electricity, water and mortgage payments cost. This helps to raise awareness that it’s not all about wants, but needs, too – and that a responsible person knows which of the two comes first.
5. Learn It By Earning It.
Another often-overlooked but effective way to teach your older kids the value of money is to have them earn it. Encourage them to get a part-time job, whether that is chores for your neighbours, a paper route, or a job at the local store. When your kids are earning an hourly wage, they will learn to appreciate the hard work that goes into earning money and will likely be more careful when spending.
It’s the adults in their lives that help kids learn the value of money (or not). If you want your kids or grandkids to appreciate money and to feel comfortable managing it, talk to them about it. These five tips can help get you started down the right path!
Are you a parent or mentor with some advice to share? What did you do to teach your kids about the importance of money management? I’d love to hear what worked (or didn’t work!) for you, so leave a comment below with your story.