Parenting can be a tough job sometimes, but is also the most rewarding job you may ever have. Teaching our kids how to do things is a primary part of parenting. Sometimes, those lessons can be hard. Sometimes, they are a joy!
Regardless of what age your kids are, money is always a tough topic and one that can be difficult for parents, depending on their background and their own financial outlook. Nevertheless, teaching your kids about money is probably one of the most critical things you can do as a parent. Here are my top 6 lessons about money that every parent should be teaching their kids:
Money has to be worked for
In a recent study, Marty Rossmann of the University of Mississippi used data collected over 25 years to determine that doing chores instilled in children the importance of contributing to their families and gave them a sense of empathy as adults.
Those who had done chores as young children were more likely to be well-adjusted, have better relationships with friends and family and be more successful in their careers.
Though opinions on tying chores to allowance vary, having your kids work for at least part of their allowance teaches kids even as young as age 3 or 4 that money doesn’t come free. Regardless of what your decision is on giving an allowance based on chore completion, one thing is key: consistency!
Let them make their own purchasing decisions (or mistakes)
If you give your kids an allowance, it’s a good idea to set aside a certain amount of money that they can make decisions with about how to spend. As a parent, it’s our job to teach kids how to smartly spend their money, because no one else will. Sometimes this means letting them make mistakes. Or in other words, letting them buy a junky toy that you know will be tossed aside after a few hours of play. Yes, it can be hard to do, but that is a great learning opportunity!
Show kids how to spend within their means
Along with giving kids free reign with at least part of their allowance, make them stay within their budget. If they only have $20 to spend on a new video game, and the one they want costs $25, well…looks like they’ll have to save up that extra $5, right?
As parents, it can be extremely tempting to just give them that extra $5. After all, it’s only $5. But learning to spend within their means is one of the most critical lessons you can teach your child to set them up for a successful financial future.
Keeping track of their money
Piggy banks are a great financial tool for kids, as are savings accounts. For younger kids, a hands-on tool like piggy banks helps teach kids the value of keeping track of their money.
A great alternative to a piggy bank that I saw recently is using glass jars. Keep a separate glass jar for money that your child can spend, another for the money they are saving, and another for money the child can give – whether that is to a charity, church, or other. This is an easy way for the child to visualize and see how their money is either accumulating or being spent. Plus, it’s an easy way to teach money management and instill the practice of saving and giving.
Saving is valuable and brings gratification
Including your children in some of the financial decision making in your home can be a good way for them to learn the value of saving.
For example, say your family would like to take a trip to Disney World or Hawaii. Discuss as a family how much it will cost, and how much you collectively need to save up. Next come up with some ideas on how your kids can participate in the saving – perhaps odd jobs or ways they can earn extra money to put towards the trip. Have them save their part in a clear jar so they can see how the money grows as the trip gets nearer, and consider creating a colorful chart to track the family’s saving.
This teaches even young children the rewards and gratification of saving!
The uses, and the dangers, of credit
The basics of credit can be taught at a young age (around age 9 is a good time to start discussing it), but it is extremely important to really make sure your teen understands the proper uses and dangers of credit before they go off to college.
Credit card companies are increasingly marketing to teens at high school and frequently offer credit cards to students on campus at college. If teens are not properly educated about credit, using credit cards irresponsibly during their teenage and college years can really get them started out on the wrong foot financially.
Obviously not all credit is bad, but the average American household carries $15,310 in credit card debt alone. Ensure teen understands by using visual aids that show how interest can dramatically increase what they owe, and when the use of credit (debt) is appropriate.