Unfortunately, schools don’t do a great job of teaching kids about money. And it’s a huge problem!
Money is one of the essential things in our lives, yet most of us are never taught how to manage it properly. As a result, we often make costly mistakes that can send us back financially for years.
If you want to ensure your kids don’t end up like this, you need to take matters into your own hands. You need to teach them about money.
But where do you start?
In this post, we’ll show you everything you need to know about teaching your kids about money. We’ll cover topics like budgeting, saving, investing, and more.
You’ll learn:
- The importance of teaching your kids about money
- The basics of budgeting, saving and investing
- How to teach your kids about credit and debt
- Real-world examples of financial concepts
- And much more!
So what are you waiting for? Let’s get started!
The importance of teaching your kids about money
First, let’s talk about why teaching your kids about money is so important.
As parents, we often try to protect our children from the harsher realities of life. We don’t want them to worry about bills, debt, or other financial problems.
But the truth is, ignoring these issues won’t make them go away. It can often make them worse.
If your kids don’t understand how money works, they will likely make costly mistakes later in life. They might rack up credit card debt, make poor investment choices, or even file for bankruptcy.
In short, teaching your kids about money is one of the best things you can do for their future.
Not only will it help them avoid financial problems, but it will also give them a better understanding of how the world works. And that’s priceless.
So now that we’ve covered the importance of teaching your kids about money let’s talk about some of the basics.
The basics of budgeting, saving and investing.
One of the most important things you can teach your kids about money is how to budget, save, and invest.
1. Budgeting
This is the first step in children’s financial literacy. They know little about money and its value. They have no concept of needs versus wants. As a result, they need to be taught how to create and follow a budget.
This stage aims to teach kids
- the value of money and
- how to make choices about spending and saving.
This can be done by helping them create a budget for their allowance, birthday money, or any other money they receive. Once they have a budget, it’s important to help them stick to it.
If you want to try this method, here’s a quick guide on how to get started.
First, decide how much allowance you’re going to give your kids. This will depend on their age, your financial situation, and how much you think they need to cover their expenses.
For example, if you have a five-year-old, you might give them $5 per week. You might give them $20 per week if you have a teenager.
Once you’ve decided on an amount, help your kids set up a budget. This budget should cover their weekly expenses, such as food, entertainment, and transportation.
If they have any money left over at the end of the week, they can either save it or spend it however they want.
One thing to remember is that you shouldn’t give your kids more money than they can reasonably spend in a week. Otherwise, they’ll end up wasting it.
If you find that their allowance isn’t enough to cover their expenses, you can always supplement it with extra chores around the house.
This will teach them the importance of working for their money and make them more mindful of spending.
Now that we’ve covered budgeting let’s move on to saving and investing.
2. Saving
Now that your kids understand the basics of budgeting, it’s time to teach them about saving.
This is a crucial part of financial literacy, as it helps kids develop good habits that will last a lifetime.
You can use two main methods to teach your kids about saving. The first is to have them put away a certain percentage of their weekly allowance.
For example, you might have them save 20% of their allowance and use the rest for spending and saving.
The second method is to have them put away all their allowances each week and only allow them to spend a certain amount.
For example, you might give them $20 per week but only allow them to spend $15. The other $5 would go into savings.
Both methods are effective, so it’s up to you to decide which is best for your family.
Once your kids have started saving, it’s important to help them find a good place to put their money.
A savings account is a great option, as it will help them earn interest on their money. You can also set up a piggy bank or give them a specific jar to save their money in.
Tip: This is when they learn banking terms like their bank account, credit, debit, or savings.
The most important thing is to help them find a system that works for them and is comfortable.
Once your kids have started saving, you can move on to teaching them about investing.
3. Investing
Investing is a great way for kids to grow their money and learn about the stock market.
It’s your opportunity to teach them:
- delayed gratification
- how to take risks
- the importance of diversification
- dollar cost averaging
There are a few different ways you can get started with investing. First, open up a brokerage account in your child’s name.
This will allow them to buy and sell stocks, bonds, and other investment products.
Another option is to invest in a mutual fund. This is a good option for kids who are still learning about investing and don’t want to take on too much risk.
You can also set up a custodial account, which is an account that allows your child to own investments but gives you control over the account until they reach adulthood.
Once you’ve decided how to start, it’s time to start investing.
We suggest having the child buy the stock of a company they know—Disney, Coco Cola, Roblox, etc. this will help them connect their money to something in the real world.
How to teach your kids about credit and debt
It’s important to start teaching your kids about credit and debt early on. The best way to do this is to explain how credit works and why it’s important.
You can also show them how to use a credit card responsibly by using it yourself and paying off the balance each month.
It’s also important to teach them about the different types of debt, such as student loans, credit card debt, and mortgage debt.
Explain how each type of debt works and why it’s important to pay off your debts as soon as possible.
Finally, make sure they understand the importance of a good credit score. A good credit score can help them get a lower interest rate on loans, saving them a lot of money in the long run.
The Bottom Line
There are many different ways to do this, but the most important thing is to start early. The sooner you start, the better off they’ll be.
Remember, the goal is to teach them how to manage their money responsibly to live a comfortable life.
So what are you waiting for? Get started today!
