What is the best way for children to learn about money? Though there is something to be said for teaching by example, it doesn’t happen by osmosis. Although children do not learn to be financially responsible in a magical way, they do not typically learn good personal finance practices in school. Instead, they must be taught the concepts of sound personal finance at home and given the opportunity to put them into practice (on a small scale) from a young age.
The Dangers of Not Teaching Your Kids About Money
It wasn’t lost on you when you wanted to start a family that it would be up to you to help mold this little human being into a young adult and beyond. You probably knew you’d have to teach your child to talk, ride a bike, and possibly share.
But did you ever imagine having to teach them about money? You’re not alone if you didn’t. The majority of people can’t name a single money lesson they didn’t learn the hard way: through practice. However, you should and should teach your child about money and financial matters.
In reality, financial planner Paul Lermitte describes a method for teaching your children about money in his book Allowances: Dollars and Sense. But, beyond this scheme, he discusses the risks that parents face if they do not have a system in place to teach their children good money behaviors and attitudes.
It doesn’t take the entire list of six risks to persuade you that teaching your children about money is as vital as teaching them to learn. The following are some of Lermitte’s threats:
Your children can become financially reckless, possess poor money management skills, accumulate significant debt, and/or remain financially reliant on you.
Your children may form a negative relationship with money, equating it with self-worth or developing a desire for material possessions. They can believe that getting all of the new gadgets and toys would make them happy.
Your children will become enslaved by crippling credit card debt and have no idea how to set financial goals, save money for the future, budget, or shop wisely.
Your children may lack the ability to make sound financial decisions, which may have repercussions in other areas of their lives.
Teaching the Wrong Thing
Despite your best intentions, you can unwittingly teach your children incorrect money values.
Financial disagreements sometimes tear families apart. To avoid the friction and disagreements about money that can ruin family relationships, you’ll need solid values and a plan of action.
So, how are you going to teach your kids how to be more financially competitive, stop living paycheck to paycheck, and avoid crushing credit card debt? It all begins with a well-planned and directed experience.
Practice Personal Finance With Your Kids
You must allow your children to handle money often and from an early age if you want them to grow up to be financially responsible adults. They must learn how to invest, save, and even bank. They must experience what it is like to “spend” all of their money on something frivolous and not have any left over for something they really want or need. Where do you begin, though?
Principles for Financial Success
Lermitte addresses basic values that parents must recognize and adopt in order to teach their children financial responsibility in his book. When it comes to teaching your children about money, keep the following concepts in mind:
Talk About It
Talk about money with your kids on a regular basis. That is not to suggest that you should overwhelm your children with money problems or any financial difficulty in the family, but rather that you should give your children plenty of opportunities to talk about money and personal finance decisions.
It’s not just about dreaming about it; it’s about getting started as soon as possible. It’s best to start talking about money with your kids when they’re five or six years old. It may just be the fundamentals at that age, but it is critical that they understand that things cost money and how money is made and treated. It’s a good idea to open a simple savings account in your child’s name so they can learn how to use it.
Give Up Control
Allow your children to complete tasks on their own. Enable them to deposit and withdraw money from their own bank account (with your help). Allow them to make their own purchases with the money they have, whether it’s money they’ve earned from special chores or money they’ve received as a gift from Grandma. Allow them to choose how they want to spend their money. Provide guidance, but allow them to complete the task on their own. It’s a scaled-down and safer version of learning by experience.
Let Them Make Mistakes
Allowing your children to make mistakes is a part of educating them, in the same way that giving up power is. Allow your children to spend their money on whatever they want, even though you believe they are wasting it. They’ll benefit from it, and you’ll be able to discuss it.
You do want to set limits when talking about money, starting early, giving up a little leverage, and letting your kids make some mistakes. Set boundaries to restrict their errors to small-scale lessons. Set money limits that are high enough for them to learn about important financial concepts, but not so high that they believe money is limitless. Enable them to learn to make decisions based on financial constraints.
Last but not least, make sure your lessons are well-structured. A structure will aid your children in developing a clear saving and spending plan, giving them a framework to work within while you assist them and enable them to learn financial concepts on their own.
You can teach your children money management skills that will help them become wise consumers and financially responsible and stable adults, but only if you start early and stick to a teaching and practice system.