First of all let me begin by saying I am not a financial advisor or an expert on finance. I am also not a child psychologist or an expert in anyway regarding the training and teaching of children. The tips that I am including in this post are based solely on personal experience and things that I believe are important to address regarding finance with your children when they are young. When I was a child the only conversations I remember witnessing regarding money and finances were negative. These conversations revolved around not having the money to afford things and my parents not communicating well regarding the family finances. I am sure this is typical for a lot of families and mine was no exception. This is why today I wanted to address the importance of discussing money with children. The sooner that money is discussed with children in a healthy way I believe children can begin to develop healthy money habits.
If you want to know more of why I believe this is important you can read my money story here Learn from my money mistakes or My worst college money mistakes
I believe a lot of behaviors that children exhibit revolving around money are learned behaviors passed on by their parents and other authority figures in their lives. Let’s begin to set the best example for your children and teenagers on how to manage their finances when they are grown.
So what exactly do children need to know about money and how soon do they need to know these things. Each child is different in their growth and development so use your best judgment when discussing certain topics regarding money with them.
Top things that I believe children and teenagers need to understand regarding money
1. Teach your children how money is earned
Discuss with your children how money is earned. I do not believe in just giving children money. In most situations that I have witnessed what can happen to a child when this is done it does not turn out well. If you want a child that feels entitled and does not appreciate the value of money, this seems to be the quickest way to set them on that path. Instead teach them the value of earning money. You can begin to teach them through an allowance, or small jobs that you make available to them to earn something extra. A paper route, cutting lawns, babysitting, or a part time job that a child can earn their own money at, is also a great tool. Learning the value of hard work is extremely important to teach them and it is important to help them recognize, that typically nothing comes easy or is just handed to you in life.
2. Teach your children/teenagers the value of saving money
Begin to educate your children on the value of saving money at a young age. A savings account is a great way to get them started on this track and can be both a teaching tool and a helpful tool for the future. Children and teenagers need to understand how saving money works and how interest works with saving money. Showing them their statement each month can be a helpful tool to help them understand the power of saving money. I believe putting aside a percentage of everything I make every month in savings is important. Why not do the same with children with every little bit of money they earn or receive as gifts. Make it a rule that every bit of money that they receive has a portion that goes towards savings. They receive $50 for their birthday $5 goes into their savings account. If you start this young it will become a habit that they can more easily grasp and hopefully continue throughout their lives.
3. Encourage tithing and or donating to charity
If you are religious or were raised in a religious home you probably understand the value of tithing from going to church. It is discussed often in most churches but not necessarily at home. Why not begin when the child is young explaining the importance of tithing and giving God 10% of what you earn. I think it can be a much harder concept to grasp and willingly do when you are older, if this is not instilled in you at a young age. Donating to charities is very important and many do not see the importance simply because they do not understand. Charities are organizations run on donations. I think it’s important to help kids and teens understand this concept and begin to see a need. This can help them understand why it is important to have a giving heart in the future.
4. Understanding loans and credit cards
This is a hard thing to teach children I am sure. Most children will not understand the concept well until later on. Finding any possible ways to teach them about loans and credit can be super important though. Helping them to understand these things and giving wise counsel regarding the management of these before college is so important. I cannot stress this enough because I myself had to learn these lessons the hard way. Help them to understand managing a credit card even if it is just through using a checking account with a debit card when they get their first job.
6. Teach your child to balance a checkbook
Many schools may teach some things regarding balancing a checkbook, handling credit a credit score, etc in a life skills classes or personal finance class. I do not feel that this education alone is enough. This is just the beginning and should be used as a teaching element and the parents should pick up from there with further hands on education on financial management. Help your teen open a checking account with their first job and help them each step of the way with management of their finances from this job. Do not take it over by any means and manage it for them because this ruins the opportunity. This is a great opportunity to guide your children in the. Right direction before the demands of college and debt overwhelm them. Teaching them to balance a checkbook even if many do not write checks is an important tool to track what goes in and comes out and see this in writing. Encourage them to save a portion, tithe a portion, etc. as they begin to bring in their first paychecks. This also creates the perfect opportunity to help your child understand developing and managing a budget.
7. Encourage your teen or college student to start saving for retirement
Ok you might be thinking I’m crazy right now but hear me out. I believe saving for retirement is extremely important to start at a young age and that many of us wait far too long to start saving. Why not start them young with saving for retirement and help them understand a 401k and IRA as soon as they can begin putting money aside in one. Check hear to find out more about helping your child to start an IRA once your teen or college student has a job and has reached the age requirement a 401k should be an option for them to save for retirement. See the guidelines and qualifications for beginning a 401k here. Help them to understand the importance of starting to save for their future when they are young. Retirement will not only come sooner than they expect, but the earlier they start investing the better growth that money can have over time. Check out this great article from Dave Ramsey regarding investing at a young age.
5. Help your children/teenagers to understand the difference between a need & a want
This is such a basic yet important concept that many do not grasp even as they become adults. Understanding the difference between a need and a want can start very early on and the earlier the better I believe. When a child realizes the difference between a need and a want when they are younger it will become easier to help them see when they are older just what is a priority and what is not. Teach them that they do not need the newest electronics or toy these are wants, food (in most cases) and shelter are needs. If they understand this as a child they will have a better chance at prioritizing the right things as they get older.
6. Finally a lesson learned through failure
Allow you children to learn from failure with their money while they are young. Allowing them to learn this way when they are young can teach them a valuable lesson. Check out the example in this video from Rachel Cruze on how this lesson can be taught to a child. I do not have any personal examples that I could share but Rachel does a great job of explaining this through her own lesson learned.
I am not an expert by any means but these are concepts that I believe have been hard lessons learned for me based on a lack of guidance growing up. Sometimes the best lessons learned and taught to other are learned through painful experiences and in my case this would be the pain of mismanaging my finances and dealing with debt and poor money behaviors. I hope that you can at least take a few things from this that you can implement in your own child’s life to help set them on the right path to success.
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