Raising financially responsible children involves teaching them a variety of aspects, from budgeting to planning, earning and saving. Parents may feel unqualified to teach their children about money, but experts say no degree in finance or special knowledge is necessary. In reality, the process of teaching your children about money can be fun and interactive.
One of the common questions is when it is better to start teaching children financial literacy? The answer is – it’s never too early to start this process, and a variety of global researches prove it. According to a 2013 Cambridge University study, children are already able to grasp basic money concepts at age three, and by age seven, their money habits are already set. So don’t wait until they are 18 and ready to go off to college when you can teach fun and simple financial lessons to your kid right now.
Play “Let’s Go Shopping”
Every kid loves playing games, so why not turn this fun activity into a learning process as well? All you need is a bit of imagination to create a supermarket in one of your rooms, a toy cash register and a food play set. The register with a numerical keypad, cash drawer and pretend money creates a close-to-reality shopping experience for kids. The next step is to price the items and let kids play.
As a parent, you put your children on a budget and give tasks that they should accomplish while shopping. Stimulating the shopping experience will help to sharpen their math and budgeting skills. It can also be helpful to make them more comfortable talking to others about money.
Play “How Much Does It Cost?”
Another game suggestion to play with your kid is to recreate a home version of The Price Is Right. The game is very simple and doesn’t require any special equipment. At the dinner table, parents take turns presenting arbitrarily selected items for sale, along with multiple choice answers for their approximate prices.
A few examples:
- A gallon of Milk: $0.50, $3.50 or $8?
- Movie ticket: $4, $10 or $40?
- Monthly phone bill: $12, $100 or $400?
- New laptop: $500, $1000 or $2500?
Games like this help them understand the relative values of various products and services.
Avoid Giving Kids Money Freely
One of the common mistakes that parents make is offering unlimited funds to their children for non-essentials. There are no rules about how much money you should give your children, but a fixed weekly allowance is highly recommended. If they want more, give them a chance to earn extra cash by offering help or performing well at some school tests, for example. This practice will bring them a sense of financial responsibility as well as money value.
Children of parents who offer them unlimited funds may develop the habit of relying on additional funding sources that can be quite costly, such as debt in the form of high-interest credit cards.
Budget Together
Budgeting might be a totally unfamiliar process for your children, but it is one of the most important ones when it comes to money management. The easiest way to teach your kids about budgeting is to involve them in this process. For example, when your kid gets invited to a birthday party, give them a reasonable budget and shop together for a gift that stays within their price lane. A great way to do so is shopping on Amazon as you can teach them how to comparison shop as well.
Show Kids How to Put Their Money to Work
The savings process makes complete sense for adults, while for children it might be a very abstract thing. It is essential to explain to them in basic terms how their money is earning more money (passive income) and how that additional money will continue to generate even more money (compounding). But what’s more important, show them how this process works by relocating your kid’s savings from a piggy bank to a local bank or credit union!