Teaching children to be financially responsible can be a lot of work. Often times, schools don’t address topics like money, credit and interest until middle school or high school. Helping young kids cope with challenges like setting spending limits and impulse control can help them early on get smart about spending.
Talk About Money Young
The earlier you start teaching them about money, the better. Most kids have the skills to start learning by the second or third grade. It helps to make talking about money part of daily life. At the grocery you can talk about why some things cost more money. Are two products essentially the same or is one more expensive because it is a name brand? Are there other reasons one product might have a higher price like better workmanship or different farming practices?
Use Visual Aids
Visual aids can help kids learn about money. You can make them yourself or find them already created online. Draw things out, find online videos or use real money to act out what you are trying to explain. Hearing it and seeing it will help your child understand what you are trying to teach. Games like Monopoly, Life and Pay Day are also great learning aids.
Start Saving Early
No matter the child’s age, opening a savings account is a great learning tool. Whenever they have allowance, birthday money or a paycheck, teach them that a certain amount is for spending and a certain amount is not flexible and that goes into their savings. Start a conversation about what they would like to save up for. A few ideas could be a toy, game, item of clothing or trip to the ice cream store. Kids will quickly understand the difference between spending and saving money. Once their money is spent, they will see it is gone and they need to work for more money!
Show Them A Few Bills
As your child grows older, you may want to share a few of your monthly bills and loan payments. This will give them an idea of what they can expect when they are out on their own. Rent, utilities, groceries, internet, and cell phone fees can be a big surprise. Helping them understand all the expenses of adulthood will help them prepare and motivate them to work hard in school. Life is expensive and working towards a good job can help!
Explain Debt
While teaching them about monthly bills and encouraging saving, don’t forget to talk about debt. Explain that a credit card is not free money and that any loan you take out must be paid back with interest. Show them the high rate of interest listed on a credit card statement. This will help your child understand the true meaning of debt and what over spending mistakes to avoid.
Discuss Taxes
The final topic to talk about with kids is taxes. You can easily show a child what taxes are by buying an item at the store that costs a flat dollar amount. By buying an item that costs exactly $1, $5 or $20, you can illustrate the principle of taxation. Even though the product costs a certain amount, the total at the register is usually higher thanks to taxes that go to the government. Older children can learn about taxes by looking at a paycheck. During tax season, show them how you file your taxes yourself or explain that accountants are professionals who prepare tax returns for individuals and companies. Kids will soon learn why April 15th is a special day!
We hope this gives you a good start on where to begin when talking to your child about finances. We are happy to help you open an account to aid in this discussion as well as answer any questions along the way.