Earning, Saving, Opportunity Cost: How To Teach Your Children About Money

Parents want what’s best for their kids. But what does that mean on a fundamental level? If you ask most parents, they probably aren’t talking about fancy toys or extravagant vacations, but instead things like security and safety. And one way to give that to kids is to teach them about money.

When it comes to how to teach your children about money, you may not be sure where to start. Do you begin when they’re young or wait until they're older? What exactly should you be teaching them? Don’t worry – below, we’ve got all you need to know about teaching your kids to manage money.

Teaching Your Kids About Money
A couple of things you may be wondering when it comes to your kids’ financial literacy are “What should I teach my kids about money?” and “When should I teach my kids about money?”. These are two great questions and a good place to start.

It’s never too early to start your children off with the basics of money management. Experts say that starting before age seven is ideal, because by that time a child has already formed ideas and attitudes about money.

Once your kids have reached the age where they’re not just sticking random coins in their mouths, introduce them to the idea of cash and coins. You can use this to explain and help them understand what money is for and how you use it. You can even make a point to show them how you pay for something at a store.

It’s not uncommon for children to understand the basics of money by as young as age four if their parents take the time to explain it to them and model how to use it.

Teach Them To Save
Many parents ask, “How do I teach my child to save and spend money?” Spending money seems kind of easy, truth be told, but it’s the saving that can be more difficult.

You can easily instill the habits of money saving in your children by giving them a little control. Saving takes a different skillset than spending because it involves learning how to set goals and plan. But you can easily help your kids learn to save by giving them a good, old-fashioned piggy bank.

With a piggy bank or savings jar, you can have them deposit the cash or coins they wish to save and include with it some important messaging, such as “Saving is a good habit” or “I love to save.” Once they get the hang of it and you help them to attain short-term goals while they’re young, you’ve created a rich ground from which other savings habits can grow.

You can also encourage saving by agreeing to match what your kids save. If they have the goal to buy something very expensive, like a new game system, tell them that if they save up half, you’ll pitch in the rest. This can be a great way to motivate them.

When your kids are old enough, you can turn the piggy bank into something even more complex. There are debit cards designed especially for families and kids that give them control over what they’re spending and allow them to save, too.

Give Them A Chance To Earn
Kids under employment age who want to earn money are at the mercy of their parents. That’s why it’s crucial to allow them the chance to earn, which in turn gives them the chance to make decisions concerning how to use the money they make.

An allowance is a popular way to provide earning potential to kids. Many kids have to do chores each week to earn their allowance. This gives them a chance to really learn the value of money through work – a very important concept in money management.

How Do I Teach My Child To Be Financially Responsible?
In the end, all of these financial literacy efforts are a way to help your kids learn how to make smart decisions when it comes to money. An allowance system helps your child learn to budget, and when you set firm boundaries and say you won’t give them any more money to spend, this forces them to learn how to manage what they have and become more financially responsible.

The best thing to encourage your children to do is to track how much money they’re earning and how much they spend, to ultimately figure out how much they need to save. That’s the cornerstone of teaching financial responsibility.

For older kids, it’s also important to teach them how to be content with what they have (and not fall prey to FOMO!). Let your older children know that even though they may see those around them getting more expensive things, there are consequences in the real world if you spend without thinking. This creates a chance to start talking about retirement and other long-term financial planning goals that adults have to think about.

Also be sure to educate older kids on things like credit cards; it’s kind of unbelievable to think that an 18-year-old fresh out of high school can be given a credit card, but that’s the reality! This is where all your focus on financial goal-setting and responsibility should kick in, because you’ve hopefully helped them to understand the dangers of debt and spending outside their means.

Ultimately, you have to choose when the right time to teach your kid about money is, but remember that it’s never too early or too late to start. If you’ve done your job right, by the time your child is an adult out there in the world on their own, they’ll be living a life where money management isn’t a foreign concept – and they’ll likely have a big advantage among their peers.

Featured image by Elena Mozhvilo on Unsplash