How to Teach Your Kids About Finance: The Ultimate Guide For Parents

Your kids are eager to learn about finances. Fortunately, there are many ways you can teach them about these concepts.

One way is by showing them how stocks and investments can help them achieve their future goals.

By the time they’re teenagers, your aim is to have them understand how money can be used to reach any goal.

In this article, we’ll explore a few ways you can follow to make sure your child develops an overall understanding of finances, and how to invest wisely.

The Importance of Financial Education

Financial education is important for all kids, especially as they get older and start making financial decisions on their own.

Your children will learn how to manage their money, set goals and develop good spending habits.

The earlier you start teaching your child about personal finance, the easier it will be to transfer your values to your child.

You can start teaching your child the value of money from a young age by teaching them how to count coins or how much money they have in their piggy bank.

Talk to your child about money and show them how you spend and save.

Ask questions like: “How much did you spend on that toy?” “How did you feel when you saved up to get that toy?” and “How much did you save?”.

Also, show them how you make payments on your bills or how you save money.

Children learn about money by watching their parents and modeling their behaviors. So be a good role model for your children by practicing what you preach.

You can encourage your child to set goals (e.g, “I want to save $50 this month”) and help them achieve them (e.g, “Let’s see how you do on saving $50 this month”).

This will teach them how to save and how to use money wisely to achieve a goal.

You can teach your child to be financially independent by allowing them to spend part of their allowance on their own.

Explain to them that the money they are spending is their money and that if they waste it, they will miss out on something else that they want to buy.

How to Teach Your Kids About Money

Teach your kids about money now, so they can take care of themselves in the future.

Teaching children about money isn’t easy, but it’s an essential life skill that teaches kids how to spend wisely and save for the future.

But parents tend to avoid the subject because it feels uncomfortable and many don’t know where to even start.

Fortunately, you don’t have to have all the answers to teach your kids about money.

You just need to start the conversation early, be patient, be positive and be consistent.

Here are four ways to approach the topic with your kids.

Open up to your kids about your own financial journey

Let your kids see that you’re a human too, and that you make mistakes with money. Make it clear to them that you’re learning too, and that it’s OK.

Don’t try to hide your money mistakes from your children; instead, acknowledge them openly and then talk about how you learned from them and how you fixed the problem.

Talk about money using kid-friendly terms

Explain to your kids that there are different “currencies”. The currency you earn is called “wages” or “salary”. The money you borrow is called “credit”. The money you spend is called “debit”. And the money you save is called “credit.”

Explain what these terms mean and how they apply to real life situations, such as when you have an overdraft fee on your bank account, so kids can grasp the concepts easier.

Teach your kids about “debits and credits”

Instead of telling your kids that money “grows on trees” or “money grows on people’s backs”, you can teach them that “money grows on trees” only in the sense that money grows in your bank account and credit grows in your credit cards.

While it may seem obvious to you, kids can get confused when they first learn these concepts.

Help your kids set goals

Help your kids set goals by encouraging them to write down their goals and dreams. Encourage your kids to save part of their money for these goals.

For example, if they want to buy a musical instrument next year, have them set aside part of their savings for it every month instead of spending it on a toy they want now.

Become a Role Model For Your Children

Raising your children to be financially responsible takes time and effort.

While you want to teach your kids about money and investing, you also have to balance your own busy schedule.

Here are some things your kids can learn from you, even if you’re busy.

Talk to your kids about money

Instead of giving your kids money every now and then, talk about how you spend and save your money.

For example, you can talk about how you spend your money on groceries or how you invest your money in your company’s stocks.

The more they see you do with your own finances, the more they will learn from you.

Teach them the value of money

Have your kids help you at the grocery store and help them understand how different food costs different prices.

Also, help your kids understand the value of money by helping them understand things like interest earned or interest paid on loans.

By understanding these concepts, they will better understand why they need to save up for big-ticket items.

Encourage them to save

Get your kids involved in saving by giving them their own money to save or by giving them their own piggy bank.

Having your kids save will teach them discipline and the value of money.

They will learn the importance of saving up for something they really want, instead of buying it right away with money they saved up on their own.

Teach them about investing

Teach your kids about investing by helping them understand the pros and cons of different types of investments.

Then help them invest their money accordingly. Depending on their age, you can make this a game where you make an investment decision and then see whether it makes a profit or not.

You can also give your child a mutual fund and let them watch it grow over time. When they get older, they will be able to make decisions about whether to sell the fund or buy more shares in it.

Teach them about risk

Your kids should learn that not all investments are safe and that not everything is a guaranteed gain.

Educate your kids on the risks involved in investing and help them understand if they should invest their money.

If they are young and unsure of how to invest their money, help them buy low-risk exchange traded funds (ETFs) so they can earn a little profit without too much risk involved.

What to Do If Your Kids Want an Expensive Toy

Everyone wants to get their kids the latest toys. However, sometimes buying those expensive toys may hurt your budget.

So how can you get your kids that toy without going bankrupt?

If your kids have their hearts set on an expensive toy, simply list a few toys that fit your budget.

You can also make your kid choose which toy he/she wants first, and that way you can make it work.

If you have multiple kids, see if any of them can help to buy their siblings’ toys. Most kids will be more than willing to help out their siblings with their toys.

If you’re willing to splurge, consider getting a used toy. You can find some great deals on eBay or at yard sales.

You can also ask your kids to help earn money for the expensive toy. See if they can sell some of their toys or earn some money by doing chores around the house.

If you have more than one child, consider the toy as a gift for the whole family. That way, if one child can’t afford the toy, he/she can still play with it.

If you have time, consider making your kid’s toy yourself. Pinterest is a great resource for DIY toys.

If your kid wants a particular brand, try to see if you can get a discount or a coupon. You can also hunt for some sales online.

The Bottom Line

Your kids will most likely learn about money through you. So bring them a wealthy education that will truly enrich their lives.

Don’t shy away from the subject because it’s uncomfortable, or you don’t know how to teach your kids about money. It’s okay to be a student about money too.

Although they’ll be exposed to a lot of financial concepts in school, it’s best to start teaching your kids about money and financial concepts when they’re young.

Saving money is a great way to not only plan for the future, but also teach your kids a valuable life lesson.

You can use their allowances for a few weeks to let them experiment with how much money they can set aside, and how much they’ll have leftover to spend on themselves at the end of the month.

This experience will be eye-opening, so you might want to set the example with saving your own money too.

This tactic will also teach them the importance of budgeting and being responsible.

You can start a lemonade stand, take them to the flea market to sell items, or help them sell cookies at Christmastime.

Let them earn their own money, so they can learn how to spend it wisely.

Not only will they be more financially responsible, they’ll also appreciate the independence they gain by making their own money decisions.

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