You’ve probably heard stories of adults mismanaging their finances. It could be as serious as squandering their parents’ wealth or blowing through a trust fund.
Mind you, it’s not just the wealthy that fall into this trap; middle-class families are just as susceptible.
You might think it’s due to reckless spending habits or lack of discipline, but the root cause is usually a glaring lack of financial education.
Many of these individuals simply weren’t taught the basics of earning, saving, or investing. And these skills are essential for living in today’s modern world.
If you’re a parent or guardian wondering how to teach your children about money, you’re already on the right path.
In this article, we will explore how you can teach your kids about money, so they can grow up to be financially responsible adults.
How early is early enough?
Some parents believe it’s better to wait until their children are older to teach them about finances, but research suggests otherwise.
According to a study by the University of Cambridge, children’s money habits are formed by the age of seven. Yes, you read that right – by age seven!
This means that the earlier you start teaching your children about money, the better equipped they will be to handle it responsibly in the future.
So, despite common misconceptions, teaching children about money early doesn’t spoil their innocence or burden them with adult responsibilities.
Instead, it equips them with essential life skills and empowers them to make informed decisions.
How to Teach Your Children About Money Early?
Here are 7 ways you can teach your kids about money early.
1. Get Adequate Financial Literacy
You might think we’re going to start with your children, right? Wrong. This is more about you than your children.
The reason is simple: you can’t give what you don’t have. Even if you have a decent grip on your finances, there’s always more to learn.
If you’re going to help your child understand money and how it works, you need to have a solid understanding yourself.
So, before you kick off discussions about money with your child, make sure your financial knowledge is in order.
Also Read: 7 Expert Tips for Getting Out of Debt
2. Start with the Basics
When it comes to teaching children about money, it’s important to start with very simple concepts. These basic teachings help you lay a solid foundation for more complex financial concepts later on.
You can begin by explaining what money is and how it’s used. Show them different types of coins and bills and teach them how to identify their values.
You can also make learning fun by playing games like “grocery store” or “bank” where they can practice counting money and buying things.
In the same way, introduce the concept of saving by giving them a piggy bank or a clear jar to collect their spare change. And while at it, encourage them to set savings goals. This could be for buying a toy they want or a special outing.
3. Lead by example
At every point in time, your children are observing you and learning from you. Because children learn by example, you need to be mindful of your own financial behaviors.
So, what should you do? Practice what you preach by demonstrating responsible money management habits. Let your children see you budgeting, saving, and making wise financial decisions.
You can also infuse money lessons into everyday activities. Give them a small allowance and encourage them to save a portion of it.
When you’re at the shopping mall, involve your child in comparing prices and making decisions based on a budget.
Also Read: How to Save Money for Your Dream Home as a Family
4. Encourage earning and entrepreneurship
Some people think it’s okay to just say “No” when their children ask for money. But that’s counterproductive. It’s not going to make your children financially responsible.
Instead, teach your children how to make money. Help them understand how to earn their own money by being hardworking and resourceful.
Set them up to make money through chores, babysitting, or starting a small business.
As you empower them to earn and manage their own money, you’re intentionally creating a sense of independence and initiative in them.
5. Teach Them the Importance of Budgeting
Budgeting is a money skill everyone should learn, regardless of age. Sometimes, instead of just telling your children about money, show them how to create a budget.
The truth is children like everyone else gets money even if it’s not much. There are money gifts from relatives, small allowances you gave to them or even money they made from doing chores for neighbors.
After you’ve pointed out all this money sources, help them allocate the money to different categories, such as saving, spending, and giving.
Then, encourage them to live within their means and spend only on important things. If your child learns how to budget wisely, you’ll be surprised how they’ll be able to make smart financial choices as they get older.
6. Introduce the Concept of Investing
Okay, we get it. Investing looks like an adult topic but your child’s life will be much better if they learn investing at a young age.
Due to how complex this topic is, this is one area you want to begin to teach your children as early as possible. Teach your children about the power of compounding interest and the benefits of long-term investing.
Based on their age, teach them about investing in shares and stocks and how it works. People like Warren Buffet started investing early and because of the power of compounding, he is one of the richest people in the world today.
If your income permits, you can also help your children invest in land, gold, or stocks. Afterwards, continue to update them on the growth of their investment portfolio as they get older.
One advantage of introducing them to the world of investing, is that you’ll be helping them to build wealth and financial security early.
7. Be Patient and Consistent
Financial education is a lifelong journey, and children will always be children. It’s inevitable that they will make mistakes along the way or delay in grasping some money concepts as fast.
When all of these happen, don’t yell at them or end the teaching. Use these opportunities as teachable moments to drive concepts deeper.
Also, help your children learn from their experiences by asking them questions about their money, income and savings.
As long as you provide them ongoing guidance and support, you’ll enable them to embrace their mistakes and learn new lessons.
Also Read: Guide on How to Improve Your Credit Score
Preserve Your Children’s Financial Future
Teaching your children about money early is one of the most valuable gifts you can give them. And your children will thank you for it by the time this knowledge gets more valuable in their lives.
In time to come, as the rest of the world grapples with recession and debts, a solid financial knowledge will help your children avoid the pitfalls of poor money management.
So don’t wait — teach your children about money early. Equip them with essential financial skills and habits to empower them to make smart choices and build a secure financial future.
