In school, kids learn algebra, calculus, and trigonometry, but not how to budget, save, or invest. The older we get, the more responsibilities we have that make it challenging to focus on learning financial principles, which is why it is key to start teaching kids healthy money habits at a young age.
Lacking financial literacy and not knowing how to manage one’s personal finances cost Americans $352 billion in 2021. A Federal Reserve report indicates U.S. household debt increased to a record $16.15 trillion in the second quarter of 2022 and Americans loaded an extra $46 billion on their credit cards this year—the sharpest increase in more than 20 years.
Heed these tips for ways you can teach your kids critical financial skills at home and help them learn to be good money managers for life.
Learn to Earn: Kids today are addicted to other people’s money, but they need to learn to associate money with earning it. Chores are a great way to introduce kids to the “earning it” mentality. Starting as young as five, parents can assign kids chores or tasks to do around the house as well as a set amount they will earn for correctly completing the chores. This can also help prepare kids for the real-world responsibility of holding down a job and earning a paycheck.
Spreading the Dough: Setting boundaries with kids and letting them know they can’t just squander all the money they earn on candy and knick-knacks at the store can help them learn healthy spending habits. Any money kids make should be broken up into three categories: spend, save, and invest or donate. Parents can discuss with their child the percentage of money they can spend from the total amount they earn as well as the amount they need to save and invest or donate. Parents need to stand firm with the numbers or percentages that are decided, even when kids are begging or crying for the latest toy or video game.
There Will be Rainy Days: Saving doesn’t seem nearly as fun as spending, but after witnessing how a pandemic impacted people’s finances and the way inflation made prices skyrocket this year, it’s a critical skill kids need to learn. Having kids put a certain percentage or amount away from the money they earn from doing chores, running a lemonade stand, mowing grass, babysitting, or money given to them for a birthday or holiday, can make a world of difference.
Investing is Future Saving: It might seem absolutely crazy to introduce young kids to the stock market and the practice of investing, but we’ve seen what happened with viral investing opportunities that have been plastered all over social media. It’s important parents step in and help teach these lessons before social media becomes their child’s financial advisor. The stock market doesn’t have to be a scary and overwhelming thing. Parents should have their kids start slow by picking a company or product they use and are familiar with for the first investment.
Borrowing Has its Price: Most kids think of credit cards as get-out-of-jail-free cards. Sit down with your child and lay your cards out on the table. Have an open discussion with them that it isn’t free money and that you are having to pay more for whatever item you just purchased on the card unless you pay it off that month. With inflation the way it is, it’s important for parents to go in depth when discussing interest and how it works with their child.
Tracking Invisible Money: Most kids just see their parents stick their card into a machine and then they can walk out of the store with their purchases. They don’t understand the transaction behind the swipe. Parents can use their own debit or credit card accounts to show kids what goes on behind the scenes. Pull up your online account and talk to kids about the different columns on the card statement as well as the balances.
There’s no better way to teach kids these skills than to provide them with hands-on experience. Review below for more information on how to choose a debit card.
Focus on Needs, not Wants: When it comes to learning to budget, recognizing “want it” versus “need it” can save anyone a lot of money. The earlier your kids understand the difference, the better they will be at saving money. Have them get into the practice of asking “want it or need it” before each purchase, even while family grocery shopping!