Almost from the time they can walk and talk, children need to begin learning the value of a dollar — and parents remain the key individuals to teach them what they need to know about personal finance. (No one else is going to do it! And even if and when others tried, no one will do it as well as a child’s own parents.)
As kids grow and mature, such important topics as budgeting and credit scores are also important for them to understand.
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Here are four key topics children need to learn when it comes to money and managing it:
1.) Saving and budgeting are essential. These are the cornerstones of good financial habits, so their importance should be emphasized from a young age.
A lot of parents do a good job of giving their children an allowance and requiring them to pay or save for toys and games that they want — but this doesn’t go far enough. Parents should consider having kids set aside money to save for a long-term expense, such as the down payment for a car. While children won’t be able to see the payoff right away, they will be able to see that when they set aside money every week or month, it grows significantly over time.
Parents can start by opening a savings account with their child and teaching him to regularly deposit a portion of his allowance into this account. Parents should also emphasize to their children that just because they have money — that doesn’t mean they should spend it.
In terms of budgeting, the most important thing parents can teach is this: Kids should be aware of how much money they’re spending and where their money is going — this is a valuable lesson to teach while they have no major expenses. The easiest way to help convey this is through a prepaid card. Parents can deposit their child’s allowance onto the card; then, when they receive the monthly statement, they can go over the transactions with the child.
Related: The Secrets of Raising Financially Savvy Children
Allowing kids to use a prepaid card also helps them understand the processes necessary to complete transactions in the real world; it teaches them that they will run out of funds rather quickly if they don’t budget their money correctly. When children get older (and have the hang of budgeting), they can then sit down with their parents, see the family’s expenses, and figure how to formally construct a budget.
2.) Parents are not an endless money pit. While most parents hope to provide their children with money if they need it, kids also need to learn that their family is not a source of endless cash for them.
As such, children should be encouraged to start earning money once they’re old enough. They’ll learn the value of a dollar and understand money is not something that’s handed to them.
Related: Smart Money Lessons for Kids
Parents don’t have to go out of their way to make this possible: Groups such as the Boys and Girls Clubs of America and various after-school clubs and programs encourage children to participate in fundraisers and other activities that can foster entrepreneurial capabilities. The point isn’t necessarily to get children to start their own business; it’s to help them realize there are ways outside of their primary income source — in this case, their parents — to make money. Children can take these insights and use them in their own ventures (lemonade stand, anyone?) or even do something as simple as mowing a neighbor’s lawn once a month for $5 or $10.
3.) Borrowing is important, too. Failing to teach kids about the importance of borrowing is a common mistake parents often make. (go to page 2 to continue reading) [lz_pagination]
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