When it comes to finances, it’s never too early to speak with your children about money. The financial world we are living in is changing rapidly. In this new landscape, parents can adjust by recognizing simple steps to teaching finances to their children.
Why Teach Youth About Finances?
When surveyed, many parents say it’s never too soon to teach a child about money. However, only about fifty-six percent (56%) of these parents have actually had those conversations with their kids. Have you? No worries, we can help you right here.
Educational institutions are no better. According to a 2020 Council for Economic Education survey, only “21 states now require high school students to take a course in personal finances.” You can see the full survey here. As states are beginning to slowly recognize the importance of financial literacy, parents should too.
When parents become active in teaching their children finances, they better prepare them to live successful lives and make smarter decisions. These better decisions start in their early years and follow them well into adulthood.
Not only does learning about finances empower them for future decisions, it helps children to better understand the value of money. When kids understand money, they are less likely to spiral into the traps of bad debt. And they begin thinking, early on, about saving, investing and building wealth.
When you teach children about finances, it is a win-win for both the children and their parents.
Steps to Teaching Finances
As parents, we need to be aware that technology and technological advances will drastically change the way money is spent by our children. Past methods of commerce are no longer the only ways to handle transactions. But with these advancements come many more temptations and possible pitfalls. The ways our children will shop from day to day will be vastly different than previous generations.
Like any good plan, there are steps to achieving the goal of teaching finances to your children. With this in mind, let’s take a look at four steps that can help guide you when talking to your children about finances.
1. Introduce them to the concept of money as early as possible.
Children often do not fully understand the concept of money. They may think that five single dollars is more than a single ten dollar bill. They usually equate the quantity in their hand to more than the value of the notes themselves. However, when they reach the age where they can identify and count numbers, you should start teaching them about the value of money.
Start by modeling the behaviour you want them to follow. If they see you spending recklessly, then they will believe that’s how to handle money. And, yes, even when you don’t think they’re paying attention, they are. In your own life, show them that handling money takes discipline.
Are you an impulsive buyer? Then it’s likely that your son will see that and become one too. Do you go shopping if you’re stressed and frustrated? Then your daughter can see this and think, I can do the same.
Model want you want your child to do. It starts with you!
Next, allow them to make small purchases on their own. This helps them understand that items have a cost. When children learn that these items take from the money they have, they must then decide if they really want them. This is a simple way to let them see that everything has a value and a price.
2. Help them reach small goals by learning to save.
Our second step to teaching finances to children is helping them learn to save money. This important step in learning financial responsibility has a dual purpose. By saving, you help them learn the value of delayed gratification. We set our children up for failure if they are taught to be financially impulsive.
Second, you teach them the value of saving with a purpose. This shows them how important it is to have financial goals. It also shows them that it’s OK to not be able to afford something right now. They learn that by saving, they can eventually afford to buy that item later.
The practice of saving will better equip them to be able to budget and target bigger goals in the future. This simple technique teaches children that there are better rewards for saving their money than by spending it right away.
As a parent, you should help your child create a bank account and let them make their own deposits and manage their receipts. Many financial institutions offer youth accounts which will help them learn about handling money. Most of these accounts help them target funding for college, or other goals. Saving is an excellent way of getting them prepared for real-world responsibilities.
3. Teach them the different ways to use and spend money.
Our children are growing in a digital age. Although it is said that ‘cash is king,’ they need to understand the power of finances, in the online world. They need to know that they can also spend money digitally. But not without responsibility.
This step to teaching finances drives home the idea that purchases and payments can be made entirely online. But the impacts of those actions are very real. Children need to understand that digital purchases have just as much impact on their finances as any other.
Being able to make purchases at the click of a button from the comfort of your home is indeed a lovely experience. But as a young, financially-inexperienced individual, it can be very easy to find themselves in debt before realizing what has happened.
If they do not see that online purchases are, indeed, impactful, they might make them without serious considerations.
These days are dominated by digital transactions. They may even be preferred as these transactions can be deemed safer than having cash on their person. Children need to know that those transactions have to be managed and monitored. They have to be taught to pay attention to all of their spending, and not just the physical dollars spent from their hands.
Nearly every purchase today can be made by a swipe of a card, or a click of a “BUY NOW” button on a mobile device. The simplicity of these transactions can easily minimize their impact. But, done enough times, these ways of spending money can cause them to spiral into serious debt. Depending on the age of the child, that debt can be a burden that parents are responsible to repay. Understanding how money works in a digital age is crucial for their success.
Use this current financial landscape to teach your child the importance of checking their accounts online before making purchases. This will help them to keep track of their spending. And it will help them to better budget their finances so that they do not end up in debt.
4. Teach them about budgeting their money.
Budgeting is one of the most important aspects of financial responsibility you can teach your child. Budgeting can help young adults stay on track with their bill payments, stay out of debt, and give them the opportunity to save. It can also help younger children gain the discipline of financial management.
In simplest terms, budgeting is creating a plan to determine how you will spend money. Teaching your child to budget should start from an early age, and the best way is to lead by example. Children learn by patterning behaviours of the adults around them.
As budgets are financial plans, it’s important to show them that they need one. Our previous blog on financial planning is a great start to the conversation with your children.
By teaching them to budget, you show your children how they can achieve their financial goals. You can start off with small and simple budgeting goals with them. This will set the tone for their financial success later in life. By getting them into the habit of budgeting early on, you prepare them for when they will be living on their own.
Younger children can learn about money by receiving modest rewards for chores done around the home, or for good grades in school. Earning these rewards helps to bring a sense of satisfaction to children. As soon as they have those funds, show them how to budget them intentionally. By doing so, you introduce them to the greater satisfaction of reaching a goal.
Apply the Steps. See the Success.
We kept the steps to teaching finances to children short, simple and actionable. Of course, we can explore more steps when speaking to older children, as discussed in many of our other financial blogs. Do you think you can apply these steps to how you speak to your children about finances today? We believe you can!
We would be glad to help in furthering those discussions. Feel free to contact us if you would like to learn more. Or reach out to Empowering the Possibilities on Facebook with any questions you may have.
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