Teaching Kids about Money, Debt and Credit
Teaching your kids about money and how to best use it will be one of the greatest investments in your life. They will understand the value of money and how to responsibly start saving money and acquiring assets as they grow older.
Neglecting to teach your children about money can lead to bad money habits when they are older, resulting in either yourself (the parents) having to help bail them out or them having to live a life that is much harder then they should as they will be swamped in financial obligations and repayments.
This article aims to look at ways to teach your children how to manage money and get a basic understanding of the principles of debt, credit and the importance of saving money from an early age.
Teach your kids what money is for
Firstly you need to begin with informing your children how money fits into their life. Make sure you let them know that money is earned by working hard so that you can have the things they see around them. Letting them know that their favourite toy and the dinners they love all come from money is a valuable start.
Doing this will make it more personal and help them understand that the things they like and enjoy stem from working hard and earning money.
Help them comprehend the value of money
This means you will need to let them know how much things cost. Begin small, let them know that a ‘Milky Way’ is $2 and inform them of the costs of everyday items. Try and make it fun by getting them excited about ‘how many milky ways’ something would cost, ranging from a house to a car.
Ensuring they understand the different values of things can really help them later in life when trying to understand what different items are worth and what is a good deal versus a bad deal.
It is suggested that children get experience in handling both notes and coins when dealing with money to indicate the value of both and ways to save them both.
Introduce pocket money and how it works
After ensuring they understand what money is for and how much things cost, get them to understand that pocket money will give them a chance to earn their own money. Children tend to be very excited at the prospect of having their very own money so play up the fact that they have the ability to earn money and it is 100% theirs.
Pocket money must not be seen as a free hand out on a weekly basis, but instead a means for them to work hard in order to receive money in return. Pocket money if given for no reason can dramatically reduce the motivation and comprehension of a child when dealing with money, as this is believed to be one of the cause and effects of over spending and debt when older.
How can they earn pocket money?
If your children can understand that pocket money will come if they work hard, you are now in a position to find ways and means to educate your children about working hard in order to earn money.
This can range from very small things for smaller children such as helping mum feed the pets or watering the flowers in the kitchen, it will still help them understand they are helping out for the pocket money they will receive.
As your children get a little bit older, you can start to elaborate on what they are required to do in order to earn pocket money. This is now your chance to teach them how they can actively help the household out while earning money for their goals and savings.
As a child I used to help fill the dog’s water bowls up daily along with helping dry the dishes each night. It taught me simple lessons in helping around the house all while earning a staggering $2 a week (Hey! At the time it was a lot of money!).
Getting them excited about saving the money
Now that your children understand money and how it can be earned, they are likely to be excited about earning as much as they can. This is your chance to show them what they can save for and the best way to do so.
Using the good old jam jar to save money can be very fun. It allows the kids to see their money adding up and also serves as a great place to add their pocket money as they earn it. After a successful week of helping with chores, make time so that both you and your child can physically add the pocket money into the jar. This should an exciting time for both of you and a chance to congratulate them on working hard for their money.
Set realistic savings goals for kids
Imagine you were a 4 year old. Would you want to save for university one day or prefer to save for your next trip to the lolly shop? Though the money they earn would be useful for a long term outlook, it is better to start small and work your way up. Saving for the trip to the shops is perfect for smaller kids as it has an immediacy about it that helps them get excited.
As they get older you can help them transfer these goals to bigger projects. Toy cars they want, their 2nd bike, their first car, their home deposit and so on.
How much input should you give?
This is totally up to you. You can be as hands on or hands off as you want. Remember though that it is important to guide your children in regards to how to best manage their savings.
As they get more educated about money, inform them of other things like interest. Let them know that interest can be earned on their savings by putting it into a savings account. They love the idea of making more money with their current money (much like me still now!).
Teaching kids about credit and debt
Using the tips above, your child should be well on the way to learning about money. Start off when they are young by letting them know that in the future they will have the option to ‘borrow’ money in order to use towards large purchases. Ensure that they know the difference between ‘borrow’ and ‘actual money’. Ideally they should be well aware that any money that is borrowed will have to be paid back at some point and will often take more then they borrowed to pay back.
What ways do you teach your children about money?
We would like to hear the ways that you help teach your child the value of money and finances. Any tips that would help other readers?
Related Posts
2 Responses for Teaching Kids about Money, Debt and Credit
I’ve tried to teach my kids about money, and even when I say things cost alot or that we can’t afford the latest gadget they say “just use the credit card daddy!” They just don’t understand the link between pulling money out of your pocket and working for it. Ah, the joys of being a kid.
My husband and I decided long ago that we would show our kids, when they reach the appropriate age (we’ll know when we get there), how much money comes in and how much goes out on essentials, what goes into savings, and what’s left over so that they can see what’s worth spending money on and what’s not worth spending money on.
I’ll have to get back to you on how that’ll work out. The kids are 3 and 2 right now. LOL But if anyone else has given this a shot, I’d love to know how well it worked out.
