As parents, it can be overwhelming to think about everything we need to teach our children – whether it’s showing them how to cross the street safely, introducing them to the alphabet, or teaching them to ride a bike.
Unfortunately, money still seems to be a taboo topic in education – even among families.
A Poll conducted by The Penny Hoarder found that nearly a third of those who didn’t talk about money management at home made less than $ 50,000. But for those who talked about money, only 18% make less than $ 50,000 a year.
And 40% of the people who haven’t talked about finance currently have no savings at all. That number falls by more than half that of those who received early financial education at home.
And unfortunately, children often don’t learn money management topics in school either. Just 21 states require personal finance education according to the Economic Education Council, to graduate from high school.
That leaves it up to parents when it comes to teaching children money. Discover how much you know about money – this cell phone is a great way to test your own knowledge Financial literacy quiz – is an important first step.
But don’t put off teaching your child about finance until you think you have all the answers.
Fortunately, we’re here to help you look like an expert – at least in the eyes of your children.
5 ways to teach kids money
Teaching your children about money lessons is important in raising adults who like to talk about and handle their money
By following these tips, you can build a solid financial foundation for your children (and learn a thing or two along the way).
1. Talk about family finances
We’re not suggesting that you study your financial tables with your kids for a fun family home evening, but your kids won’t be comfortable until they know you are comfortable talking about it.
By establishing a consistent Family budget meeting – You don’t have to call it that when the B-word scares / bores everyone – your gang may get into the habit of discussing topics such as how much money is needed to keep your household working and why it is important plan large purchases.
When children have the opportunity to play their part – and no, they do not get the casting vote even when they outnumber them – they can take responsibility for how the household spends its money.
It can start with something as simple as: We have $ 50 extra pocket money this month. Would you rather go to a drive-in theater or save the money so we can go camping next month?
2. Show them why saving pays
Your child’s method of saving will evolve as they age. However, by teaching the core value of putting money aside, you can avoid the temptation to make an impulse buy every time you have money in hand.
Use real dollars and coins
Using physical money and coins is great for helping younger children understand the concept as they can see how their nicks and dimes (and dollars) can really add up.
You can start with Teach children to budget their money – Consider using one piggy bank for savings, another for expenses, and a third for donations.
Open a bank account
When you’re done, you can take the next step Opening a bank account for your child. Many banks have accounts specifically for minors if their parents do banking there too. This can help your kids save on fees banks may charge for regular accounts.
If your child values more than money – such as B. Screen time – use this to strengthen the savings concept. Give them an “allowance” of minutes that they can work to earn more.
By getting them to a physical location to open their bank account, you will help your children become more comfortable around financial instruments and institutions. This way, banks won’t seem so intimidating when your kids open their own accounts as adults.
Teach them compound interest
Also, use your savings accounts as an opportunity to teach children compound interest – a basic financial concept that explains how your money can grow by earning interest on interest.
If the numbers on the account aren’t piling up fast enough to teach the lesson (or if you need a little more help understanding the concept), check out this video how compound interest works – It uses candy to make the concept much more appetizing.
3. Let them learn the value of their money
Getting your kids to value their money can give you a head start on money management skills.
It starts with understanding where the money is coming from (the ATM doesn’t count).
Whether you pay them an allowance, get them money as gifts from relatives, or make their own money (yes, even running a soda stall business counts), your kids will better understand how much a dollar is worth as they study how to budget their money early.
If you have a teen thinking about bigger purchases like a car or college tuition, let them use their summer break to make some extra cash – check them out Ideas for jobs for teenagers.
By settling every dollar, a child can learn decision-making skills that will prepare them for a later life when they hand out their paycheck.
Ask them questions like: Is it worth doing an extra job to make their selections in the grocery store candy aisle? By giving your kids a chance to make this decision, your kids can use the same concepts of money when deciding as adults whether it’s worth taking an extra shift to buy those new shoes or taking on a side gig to pay to build such a shoe Emergency fund.
4. Don’t let investments be just for the rich
Your kids don’t have to be the next Warren Buffett to learn the value of investing. And you don’t have to be rich to start (and neither do you).
Regardless of their age, children can learn how to increase their wealth by investing a small portion of their money. We recommend starting with a very small amount as there is of course the risk that your investment will depreciate in value. It’s a difficult lesson, but one that’s easier to accept when your child has lost a week allowance rather than a lifetime savings.
It doesn’t take a lot of money to invest initially, especially if you are working with a broker with whom you can open a custody account invest in broken stocks.
For just a few dollars, your kids can pick a few companies that make their favorite toys or movies and then check their stock price every week to see how their investment is doing.
If your family is competitive, have each member invest in a different stock and see which stock has grown the most at the end of the year.
5. Don’t make debt a four-letter word
You want to protect your children from all the bad things. So if you don’t talk about debt, it’s not going to end in it, is it?
May be. But probably not. Give them that Tools to Understand Debt is a better way to avoid bad debt and to responsibly deal with the good debts that you will face in your life.
Distinguish between good and bad debt
How can you teach children the difference between bad and good debt? Think about these two factors:
What is the interest rate?
What is the worth of the thing they are owing?
Usually it is bad if you borrow money at a higher interest rate than you can make by investing. The S&P 500 has a historical average annual rate of 7%. Hence, these benchmark experts typically use the decision on how much return you can get on an investment.
For example, if a credit card charges 18% interest, you cannot reasonably expect that kind of return on investment to result. So this is a bad debt. However, if you get a mortgage with a 3% interest rate, there is a good chance that you will invest that money and make more interest.
It is also important to teach children that bad debt and good debt involve the types of things and events they want to use the loan on. Borrow money to buy a candy bar? Bad debts. Are you borrowing money to invest in a mower so you can make money cutting off your neighbor’s lawn? Good debt (as they theoretically use that borrowed money to make more money).
Get Real About Student Loans
One of the biggest decisions kids need to make early about debt is taking out student loans. Talk to your teenagers early on about how student loan debt can affect their lives after college.
While this can be a very personal decision, encourage them to consider the costs and benefits of student loan debt. For example, is the private, out-of-state school with the beautiful campus worth the debt burden if they get an education?
If you want your teenagers to pay for tuition themselves, help them spot the differences Options for paying for college – in addition to their parents and student loans.
Teach your children how to responsibly manage debt and credit lines early on – maybe through Add as an authorized user – Will show them the benefits of building a solid financial foundation.
And if all of this is a bit of a grasp for your youngest children, you can introduce that money lesson with one of these debt free charts.
First, decide on a larger purchase that your child wants, but for which they do not yet have enough cash – but small enough to be able to “pay off” them in a few weeks or months. Each time they make a “payment” to you, they can colorize a different section of the chart.
In the end, they’ll have a better understanding of what it means to pay off debts, and you have another piece of art to hang on the fridge. Win win.
TIffany Wendeln Connors is a contributor and editor at The Penny Hoarder. Dana Sitar contributed to this post.
This article originally appeared on www.thepennyhoarder.com