Teaching Your Kids About Money – Do You Do It? Or Do You Shy Away From The Subject?
As a parent you are constantly teaching your kids things: good manners, how to use cutlery, sharing, caring and many others. But do you feel comfortable teaching your kids about money?
Yet learning about money is something we surely all recognise as essential and wish we were better at it from an earlier age. As a parent we have the perfect opportunity to teach our kids about money over many years.
In the ideal world by the time they are 18 and going off to college/university they will know everything we know about money.
And have graduated from your financial literacy for kids class with flying colours!
But what to teach, how and when?
If you were lucky then your parents will have provided you with some sort of money education: how they managed it; how they spent it and how they saved it.
But money seems to be a taboo subject in many families. If you are broke you don’t want to worry the children. If you’re financially minted you don’t want your children to become spoiled. You can’t win!
But children must learn about money so let’s pull up our adult pants and dive into the essential money lessons you can teach your children.
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The Importance of Teaching Your Kids About Money – The Ultimate Guide!
Learning About Money – See It
Start teaching your kids about money by letting your child actually see their money. Piggy banks are great and colourful but what they don’t do is allow your child to see their coins and notes slowly stack up.
Create a savings jar instead so they can see their pennies mount up.
Practice Counting Money – Give Pocket Money
Providing your child with regular pocket money from a young age gives them the opportunity to handle money. To feel the money, to see the differences in each coin and note.
Knowing they will receive this money every week encourages them to think about money and potentially what they can do with it.
Learning About Money – Instill the Need For Saving and Spending
From the beginning teach them the need to separate their pocket money into spending and saving jars. If they spend all their money then they won’t be able to save for a special toy they want.
Encourage them to split each week’s pocket money into both spending and saving.
Explain Why Saving Money is Important – Saving Goals
Children are always hankering after the latest must have toy. If they watch TV they will be inundated with new toy adverts. When they visit a store they’ll see bright, shiny, new toys they just HAVE to have!
Get them to choose a toy they want to save for, that is more than their weekly pocket money so they have to save up for it. Have them set this as their savings goal.
Explain how long it will take them to save up for this toy. Encourage them to save every week and allow them to buy that toy once they have reached their savings target.
Saving Money is Important – Create Savings Goal Charts
Children are very visual so having a brightly coloured chart depicting their savings growing toward the end goal can be very encouraging. They can see what they have saved so far and how much they still need to save to buy their new toy or game.
Saving Money is Important – A Savings Account
When your child is an adult they will be responsible for their own bank accounts, credit cards, mortgages and more. Teaching your kids about money in preparation for their adulthood can start early with a savings account.
Related post: How to choose the best cash savings account
This gets them used to financial institutions and how money works outside of cash.
Most banks have accounts specifically for children and as they grow up the account can grow up with them. Moving up from a pass book to an ATM cash card or a debit card with chip and pin.
DD2 was sooo excited when she got her first debit card. Not because she thought she’d have more money to spend.
But because it meant she didn’t have to traipse to the bank to withdraw cash after finding something she wanted to buy. She was happy to save herself the 2nd visit to the store to buy her wanted item.
Saving Money is Important – Birthday and Christmas Money
Encourage your children to save a portion of this money every year. Whether this is to add to their money goals or just delayed spending.
Not spending all of your present money immediately teaches your child about delayed gratification and making sure they really want to spend their money on certain items.
Teaching Your Kids About Money – Need vs. Want
Most children will say those fatal words about the latest toy must have “But I NEED it”! The difference between want and need can be very slim in a young child’s eyes.
Helping them understand the difference will benefit them in the future. Using their money goal and visible savings chart is a good way to help them. They can see what buying that toy would mean, how many weeks it would cost them in savings.
A Money Education – Learn Their Own Mistakes
As hard as it is to let our children make mistakes. Making them they must in order to learn from them.
Better to learn the hard way that the bright, shiny new toy wasn’t worth 7 weeks hard saving. Than to make a much bigger mistake in their teens or early twenties and end up in debt.
Providing A Money Education – Be a Savvy Shopper
You are probably a savvy shopper already. Using coupons and discounts to get the best prices. You will also have budgets that you know you need to stick to such as a grocery budget so you shop according to your budget.
To your kids you may just be throwing things into your trolley just because you like the look of them. Take them shopping with you and explain why you are buying certain brands versus the others.
Teaching kids about money, how you spend it and budget it during your grocery shop, is an easy visual money lesson.
I still explain to DD2 why I am buying certain items – because the price per kg is cheaper than another product size. Just to reinforce this message as it seems students don’t look that closely!
When DD2 was somewhat younger I even showed her the ingredient list of certain branded cereals and the grocery store equivalent. Evidence of exact recipe replication but major price differences really helped DD2 understand that branded is not necessarily better.
Practical Money Skills – Little Grocery Shop Helper
As they get a little older involve them in creating your grocery shopping list. Get them to check the grocery store’s website for the price of items so you can create a list that not only lists your items but also the prices.
Researching items and their prices is great for teaching kids about money. They get to compare prices of different items and see how far your money goes.
Budgeting for kids is a key part of their money education so let them see how much the family grocery shop costs. Help them see the difference it makes if you were to buy more branded items.
Those snack items that are all the rage for lunch boxes compared to a whole chicken for example. You can add to these messages with subtle comments around the price of X compared to what you get with Y.
Practice Counting Money – Spend Cash
These days you can get by for weeks without ever spending a penny in cash. But this doesn’t help you in your quest to ensure your child is learning about money.
Tapping or swiping a piece of plastic gives your child a very unrealistic view of money. For certain shopping trips, switch to cash only.
Whether that’s your whole grocery shop or a top up shop for a few extra items. Involve your child in working out how much cash they have to hand over. Let them take the cash and hand it to the cashier and receive the change.
Related post: Money Focus – Why I am Sweating the Small Stuff
Teaching Your Kids About Money – Fun Money Games
Finance for kids doesn’t need to be boring. There are many games that teach kids about money in a fun way. My favourite board game for this is Monopoly.
Because it has many levels and can keep adults engaged and entertained more so than some of the games aimed at younger children. I struggle to play ‘shop’ for any length of time (bad mother me!).
The Game of Life requires you to budget your money for a home, for education and much more. Cashflow is another game that some folk feel is better than Monopoly for teaching your kids about money and makes for a more interesting, realistic game.
I also like the idea that the aim of the game is to grow your passive income and ‘get out of the rat race’ which to me means stop working or retire early. Given we are fully intending to retire early and have built up a pot of money with some passive income to do this, Cashflow speaks my language!
Teaching Your Kids About Money – Talk About Money
As a parent we want to protect our children from all things scary and unpleasant. Money seems to often fall into one of those categories whether it’s because you are in debt or spend every penny every month.
Talking about money openly, the good and the bad, provides your child with opportunities to talk about it and learn what money is and why it is important.
Obviously talking about your retirement savings probably isn’t appropriate for your 5 year old. But talking about your grocery budget and what you need to buy and spend each week is a good start.
Financial Literacy for Kids – Stop the Negative Mantra’s
We’ve all done it, we’ve all said “we can’t afford it”. Whilst this may be true this doesn’t help your child learn about money. After all if you made different choices with your money perhaps you could afford it.
Repeating the ‘can’t afford it’ mantra sends your child negatives messages:
- “you can’t afford it because you have money worries”
- “you can’t afford it because you can’t control your money”
- “money is uncontrollable and scary”
It’s hard to do but replace that negative mantra with something more positive:
- “we haven’t budgeted for that this month”
- “we choose not to spend our money on that”
Budgeting For Kids – Stop The Immediate Spending Habit
I think every parent will be able to relate to being in a store and their child wanting so desperately a new toy they have just set their eyes on. And giving in to their pleading.
We’ve all been there but we are not helping our children by continuing this. It’s our weakness that we need to work on.
Once your children are receiving their own pocket money then these must have toys can go on their money goals saving chart or wait until birthday time comes round.
We are helping our children with their money education if we can stick to this.
Money Management For Kids – Involve Them in Family Spending Decisions
As your children grow up they will be gaining from the money education you are providing for them. Take this to the next stage by involving them in making spending decisions that you would make normally.
Give them task of buying certain grocery items within a fixed budget, such as items for everyone’s packed lunches or the treats for the week. Budgeting for kids is a cornerstone of their money education.
Being responsible for part of your grocery budget provides them with practical money skills and decision making skills. That if they get wrong will impact both themselves and others. In a safe way.
Take them grocery shopping with you and get them to talk through what they are buying and why. They may opt for more expensive branded items because that’s what their friends have or the TV adverts show.
Ensure they understand how far this small amount of money has to go.
Budgeting For Kids – Help Them Learn About Budgets
One financial discussion that is had by parents all over the world is the family budget. Talking about budgets from an early age and encouraging your child to build their own budget is a key life skill.
When they reach the age that they buy presents for their friends or family a budget will help them work out how much they need to save and how long it will take.
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Money Management For Kids – Let Them Join the Family Financial Conversations
It’s easy to fall into the trap of only discussing finances when your children have gone to bed. But family meals times are a great place to talk about family finances in a safe environment.
If your car needs repairs let them know how much it will cost and how you have saved in order to be able to pay for those repairs. Talk about why saving money is important and what the alternative would be (a very tight month, or debt!).
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Learning About Money – Credit Cards
We all use credit cards in our daily spending. After all why not when you get rewards and cash back? Your teen will be tempted by credit cards as soon as they head off to college/university so educating them before this is key.
Credit cards aren’t bad, but how we use them can be. A credit card is not really credit, it’s a debt card because you are going into debt every time you use that card.
Ensure they understand this reality and the need to pay off the credit card in full. And the consequences of not doing so.
Learning About Money – Debit Cards
Your child/young teen will likely graduate to a debit card when they’re around 15. An essential part of teaching your kids about money is teaching your teen that the debit card is not a licence to buy whatever they want.
It is about being able to access their own money in an easier way then a cash withdrawal. They still have to have the money in their bank account to pay for these goods.
They also need to understand the delay in those payments hitting their bank account. Especially with contactless payments.
In the UK contactless payments are widely used by young people for items costing as little as 99p. But these can mount up and not being instant they can take 2 days to show up on their bank balance.
Teaching Your Kids About Money – Emergency Savings
Your young children won’t have a need for emergency savings as that’s what parents are for!
But knowing that you have an emergency savings fund (you do have one don’t you?) gives them a great life lesson in not spending all their money and having money for ‘just in case’.
When your child is older as part of your money education you can explain what not having an emergency fund would mean. Credit card debt or a personal loan which both incur more costs in the form of interest.
Financial Literacy for Kids – Don’t Buy What You Can’t Afford
Many people live paycheck to paycheck and think nothing of putting extra spends on a credit card. This is what normal looks like. To help your child fight back against this financial norm you need to not be normal.
Only buy what you can afford that month. The same money lessons you are teaching your child also apply to you. If you want or need something more expensive than your monthly budget allows then save up for it.
And explain to your child what you are doing and why. Planning a family holiday? Explain you are saving for it, don’t whack it on your credit card to pay off later.
Financial Literacy for Kids – Earn Extra Money
Once your child has got into the habit of saving for their wanted toy they may well want to look at ways to save money faster. If their pocket money savings can’t be increased then earning extra money is the answer.
Earning their own money not only provides them with additional money and a respect for having to work to earn it. It also enables them to be more independent.
They make the decision as to whether they want to earn more money and whether they are willing to do the work associated with it.
If you’re anything like me there will always be chores that either need doing or could be done by your children instead of you. You might need to factor in an element of quality control though!
Financial Literacy for Kids – Stocks and Shares
A key part of everyone’s long term savings plan needs to be owning stocks in some shape or form. Whether as individual stocks that you buy because you like the company and think you’ll get a good return.
Or as part of an index tracker fund tracking one of the stock market indices (e.g. S&P500 or FTSE All Share). Or as part of your default retirement fund via your workplace pension.
Being able to explain that a stock is about owning a tiny piece of a company is part of your child’s money education.
You may not invest in individual stocks (I don’t) but knowing and being able to talk about them still falls into the category of ‘teaching your kids about money’.
It doesn’t have to be just about what you do with your finances. Then again you may be a stock wizard and be able to explain to me the difference between ETFs and OIECs!
Financial Literacy for Kids – Mortgages & Loans
Children have no concept of big money when they are younger. They can presume in their innocence that once they have a job they can buy the house they want.
Teaching your kids about money isn’t just about savings and not getting into debt. It’s about taking on some debt in a responsible way such as mortgages.
I’d loved to have been able to buy a house for cash but let’s be realistic, that isn’t going to happen for most people. Just as learning about money and credit cards is important, so is learning about mortgages and large loans e.g. for a newer car or student funding.
Talking about these larger debts also embeds the message about why saving money is important.
Related post: 15 things we gladly gave up to be mortgage free
Financial Literacy for Kids – Retirement Savings
Before your child heads off to be financially independent of you, ensure you help them understand about retirement and the importance of saving for their later years.
It’s hard to think about a lifetime of working never mind a time when this will no longer be the case. If they already know roughly what you earn then help them understand what needs to happen when you don’t earn.
How do the older generation live? On what? Social Security is around at the moment but will it be forever? Is it enough to live on alone, without your own savings?
Tell them about paying yourself first, saving for your retirement when you are young means you will be able to afford to retire when you are older.
I’d hate to think I HAVE to work until I am 70 because I didn’t save anything for my 70 year old self when I was younger.
Related post: Early Retirement – How Much Do You Need?
The Importance of Teaching Your Kids About Money
There are so many life lessons we know we need to teach our children. Money and finances are big subjects. But as you can see there are many money lessons that can be taught from an early age without going into school teacher mode.
It’s up to us as parents to help our children become financially responsible adults. We won’t get every lesson right and we might shy away from some. But the more we do the more we help our children be financially sound.
And that’s got to be good thing, right?