When it comes to lessons about money, many parents are at a loss what to teach their children. After all, a lot of adults struggle with financial issues, and we live in the land of a negative savings rate, rampant debt, and bankruptcy and foreclosure have become household words. And certainly trying to teach your 6-year old about mutual funds and compounding interest will fall on confused little ears, or garner responses like “Is it snack time yet?” So as a parent, what basic lessons can we instill in our children early on, helping them grow a fundamental and healthy understanding of money?
Here are 5 things you can teach them:
Don’t spend more than you have.
That sounds simple, but of course we adults have an immensely hard time with this concept, as well. But if we teach out children not to spend money they don’t have – not to get too far extended in debt or rely on credit cards for everything, without a plan and the discipline to pay them off, they’ll be ahead of the game. Children need to understand that money is a finite resource.
Put it on paper.
It’s so important for children not to be intimidated by money, nor should it be a taboo subject they’re afraid to talk about. The best way to do this is to encourage them to write anything financial down. Even taking out a piece of paper and writing down much their allowance is and breaking down what their options are for spending it will help. As they get older, this habit will blossom into organizational skills that lead them to budget, balance their checkbook, account for all spending, and have a tangible, written financial plan.
Save first.
Teach your children from the moment they touch money (or sooner) that you ALWAYS put money aside for savings whenever you earn. Whether it’s 10%, 20%, or more, the action of putting money aside FIRST for savings will sink in, and serve them very well as they get older. Then, when they get an allowance and then have a paper route, mow lawns, and then get hired for their first real job, they’ll always know how to live within their means – and have something to show for it.
Delay Gratification.
Impulsive purchases are one of the most costly and destructive financial habits we adults have. Teach your children that it’s ok to buy things you NEED or LOVE, but never to make important purchases that same day. Instead, go home, let your impulse cool off, sleep on it, and if you still really love it in a day or two and want to make the purchase, shop around for the best price and the best place to buy. Just by teaching them to delay gratification, and putting a buying process in place, you’ll be surprised how many would-be-purchases fade from their thoughts. By the way, (ahem) adults can benefit from this same process!
You have to earn money.
Ask a 5-year old where money comes from, and they’ll probably say “You go to the bank and they give it to you,” or even “It grows on trees.” It’s so important that you teach your children the concept that you have to EARN money – which you only get it in exchange for hard work, time, and energy. Even when children are very young and you buy them toys you can make a deal with them that they have to do certain chores, clean their room, or donate another toy to charity, in order to earn the money to make the purchase. As they get older, they’ll understand the concept that any purchase is just an exchange of value – and be far less entitled.
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Are there other lessons about money you teach your children? How old should they be when you start talking about it? We’d love to hear from you!
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