How to teach your kids about personal finance
Parents face lots of challenges while upbringing their children. There is so much to teach them to help become independent and successful individuals. Though not everyone recognizes it, personal finance is one of the most important skills that needs honing. Good education and other skills just don’t cut it, if the person doesn’t know how to handle money correctly and responsibly.
Thankfully, the family environment is a great one to teach kids about issues like debt and credit card. And it’s never too early to start teaching about money either. Kids as young as four years old can begin to understand some financial concepts if you make lessons age-appropriate. We will try to help you out with some basics as well.
Why is Financial Education so important?
Ability to manage your finances is one of the most important skills for building a successful life. Unfortunately, many adults do not possess it. Beth Kobliner, a member of the President’s Advisory Council on Financial Capability, stated that the mortgage crisis during the recent years showed just how little financial knowledge most Americans have.
Presently, nearly half of all Americans are living paycheck-to-paycheck, with only 46% of them setting aside any money at all for a rainy-day fund. Furthermore, the average credit card balance a U.S. citizen carries is more than $6,000. Such statistics make the sorry state of average American’ finances glaringly clear. If you want your children to avoid the same mistakes, you need to teach them how.
Unfortunately, Financial education is a huge lacuna in the U.S. public school system. So, parents can’t depend on schools in that field.
Which age is appropriate for starting financial education?
You can begin teaching your children about handling their finances responsibly from a very early age. Just try to make the lessons appropriate to their level of intellectual development. A 3-year-old might not understand the complexities of financial derivatives. However, they can certainly understand that if you give them $2 they can choose which piece of fruit to buy.
According to the latest researches, there is a real benefit to starting young if you want to build your kid’s good money habits. Furthermore, a child’s money habits can be formed for the age of 7.
How can you teach your Kids about Finance?
The most important principle is to take it slow. Try to make your lessons relevant to their everyday lives. The lessons may vary according to how old the kids are. For example, if they are between 3-5 years, you may try to teach them about saving and buying something they want.
Young children often can’t associate going into a store and you buying presents for them. It’s important to point out to them that toys or candies cost money, and that money isn’t unlimited. During the shopping, you can explain to them that you need a particular item, and you will not buy them presents.
Furthermore, you can create three jars, labelled “spending,” “saving,” and “sharing.” Whenever your kid receives money, they can then decide which jar to put it in. The “savings” jar is for important items, while the “spending” jar can be for buying sweets or small items, and the “sharing” jar is for donations or presents for friends.
As your children start to grow up, you can build on these lessons. For example, between the ages of 6 and 10, you can continue with the “jar system”, and even start to give them a little more in their allowance. However, make sure that you supervise their savings goals so that they don’t start to have negative associations with savings.
Around 11-13 age, you can already start to shift to longer-term goals from short-term savings goals. Children around this age begin to get a basic understanding of how money and finances work in the real world. They may also understand concepts such as compound interest, how credit cards work, debt, loans and income. That allows you to expound on your lessons.
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