Children’s financial literacy starts with you. By teaching them to form good habits when they are young, you will set them up for success later on. No matter the ages of your children, you can instill lessons about finances and money management that are relevant to them.
Here are three lessons that will help your children on the road toward financial literacy:
There is a difference between needs and wants.
As an adult, it is easy to compartmentalize your budget into the items that you need to pay for, like your mortgage, utilities, and food, and the items that you want to pay for, like date nights or a family vacation. For children, it’s not as easy. Introduce the concept of budgeting to them by talking about the differences between needs and wants. They need to have a place to sleep at night, but they want to sleep in bunk beds. They need to eat vegetables at dinner, but they want to skip straight to dessert. The grocery store can be a good place to reinforce this concept; as you are shopping, ask your children if the items you are putting into your cart are needs or wants, then explain how they are right or wrong.
There is never going to be enough money to buy everything.
When everything is provided to them, it makes sense that children can develop the idea that money grows on trees. Teaching them from a young age that just because they want something does not always mean that they can get it will help them make smarter financial decisions later in life. The concept of an “opportunity cost” drives this home. When your child has a finite amount of money and two purchases to choose from, they must choose one purchase at the expense of the other; they cannot have both at the same time. This concept is easier to teach when your child understands how money works and may be earning an allowance to make purchases of their own.
Money is earned and not given.
By stressing the fact that money is something that needs to be earned when your children are young, you not only set them up to be financially literate, but you also begin instilling a good work ethic in them. Instead of simply giving your children an allowance each week, consider giving them a list of chores that must be done and base their allowances on how much they accomplish. For example, each time the dishwasher gets emptied, beds get made, or toys get put away, they can earn money. At the end of the week, they get their “paycheck” and can decide whether they want to save or spend their money.
Teaching your children to be financially literate is a long process, and not one that can be achieved overnight, but starting when they’re young will prepare them to understand the complex financial topics that accompany adulthood when the time comes.