Parents want the best for their children. Parents can help children transition to a more successful adulthood by taking the time to teach them about money.
Children should start learning basic money skills long before they reach the stage in life when they need to buy a car or apply for a mortgage. Here are seven great ways to teach young children about how money works.
1. Let them earn an allowance
Experts say that giving children an allowance provides them with an opportunity to learn financial literacy. Providing a child with an allowance in return for assuming responsibilities is a classic method for letting kids experience firsthand the rewards of earning and saving money. By introducing them to the concept of trading time for money, kids quickly learn, “If I don’t work, I won’t earn the cash I need to buy what I want.”
2. Open a bank account
Parents should help children open a bank account even from a young age. A bank account not only gives them a place to save their money and watch it grow, but also allows them to develop familiarity and trust in financial institutions. This can pay off later in life when the time comes to get other financial products like loans and credit cards.
3. Encourage regular saving habits
Parents can teach children the value of saving, especially by opening an interest-bearing savings account from a young age. By encouraging children to save the cash they earn from their allowance, receive for their birthday or at holiday times they’ll see how money can grow – all by itself. Parents can also emphasize that by saving the money now it will be there if and when it’s needed in the future.
4. Help establish financial goals
Earning and saving money is much more fun when there’s a goal. Whether it’s a new book, toy or video game, children can be taught that goals are more attainable if they prioritize what they want. Engage children in conversation about determining a goal and then creating a plan for saving enough money to achieve it.
5. Teach them about delayed gratification
Children can get distracted or discouraged while trying to save even if there is a goal. If this happens, ask them to think about what it is they really want to buy and help them avoid wasting money on impulse purchases along the way. This will teach them the value of delayed gratification and help the child develop the financial discipline they’ll need as adults when setting and reaching long-term goals.
6. Encourage philanthropy
One of the most important lessons you can teach your children about money is the importance of giving back. Encourage them to donate a portion of their allowance or earnings to charity. This will help instill in them a sense of compassion and responsibility for others.
7. Set a good example
Children often mimic the behaviors of parents. With that in mind, it’s important that parents demonstrate good financial habits. This is best done by increasing financial awareness in areas including credit, budgeting basics, and how to use a loan payment calculator. Parents should try to learn something new or helpful about money each week and put it into practice. Over time, as a parent feels more confident about finances, children will take notice.
The Bottom Line
Parents who teach their children about money increase their chances of financial success later in life. While a child earns an allowance, or a teenager takes on babysitting or an after-school job and then saves money in a bank account, parents shouldn’t forget to set a good example by also practicing good money management.
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