Unfortunately, finances and budgeting aren’t usually taught in schools or required homeschool curriculum so our kids don’t know how to deal with their finances when they get out in the real world. As parents, it’s important that we teach them this necessary information. These tips will help you teach your kids the important money lessons every child needs to learn to succeed.
Important Money Lessons Every Child Needs to Learn
1. Earn your money. – Teach your child that money isn't something that is just freely given; it is earned. School-aged kids are capable of earning money by helping out with chores. If you decide to give your child an allowance, tie it to something they need to do in exchange for receiving it, like chores or home projects. Age-appropriate chores and rewards will keep your child interested and help them to connect money to work. Give them simple chores when they are younger, like setting the table and more difficult chores like cutting the grass, when they are older, in exchange for higher compensation.
2. Save for a rainy day. – Saving money is an essential element to personal finance as an adult. From the time your kids are old enough to ask for presents, toys, and books, teach them how to save for what they want.
Giving them an allowance is a good way to teach your kids to save. Your child may want a new toy that costs $15, but his allowance is only $5 a week. He has a choice to make: candy today or the toy he really wants when he has saved enough money.
3. Be careful of credit. – Credit cards can be valuable to an adult’s financial lifestyle, but kids need to learn that they are not free money. Teach your child an age-appropriate lesson about how credit works. Simplify the idea for them and act as your child's bank.
If your child wants that toy that costs $15 and they don’t want to wait until they have enough saved, tell them you'll agree to extend credit, but there are conditions. You will give them a grace period of one week, after that, interest will start accruing at 10% per week. The minimum payment for repaying their loan is $5 a week or whatever amount is equal to their allowance. Show them how to calculate how many weeks it will take to pay back their loan, with interest, if they only make the minimum payment.
4. Understand a budget. – A budget is something kids don’t usually understand. Younger kids especially, don't understand that mommy and daddy have a limited income. But learning about budgeting is one of the most important lessons you can teach your child.
One of the easiest ways to demonstrate this is with Monopoly money. Tell your child that a stack of Monopoly money represents how much money you make each month. Then, show them how you have to divide that money up, one bill at a time, to demonstrate how much you spend on mortgage or rent, groceries, utilities, car payment, and how much you put into savings. The denominations don’t really matter; what’s most important is showing your child that you have a sensible plan for your money and how important that plan is.
Teaching your child to appreciate and respect money when they are young will save them a lot of financial stress as adults. Pair these important money lessons every child needs to learn with our article on How to Teach Your Kids about Budgeting to help kids on their way to learning financial responsibility.