Financial lessons can begin during childhood
Money may not buy happiness, but money does make people feel more secure. Although money is not a way to measure self-worth, understanding its role in society can help mold a child into a responsible adult.
Many parents fail to recognize the significance of teaching children about finances, but it is never too early to impart lessons about money. Although some concepts may be difficult for younger kids to grasp, understanding money can help set youngsters on a positive financial path. Raising a responsible person is not only about advising him to avoid drugs and alcohol or to get a good education. It also is about how to manage money and save for the future.
Financial situations have changed
An adult can give pause and think about just how much money has changed through the years. While once upon a time a savings account may have been enough to get by even into one's golden years, today's children will eventually have to learn more difficult lessons about saving for retirement and investing their money wisely. Gone are the days when the majority of people retire with healthy pensions. Today's children will need to understand saving for retirement, managing healthcare costs and budgeting for diminished government-supplied benefits, all while making sense of the myriad financial products and services available today. To ensure children are prepared for all that is in store, lessons in money management can begin as early as a child is capable of understanding what money is and how it can be used.
Setting children on a strong financial path
There are many ways to teach kids about money. Here are some ways to get started.
* Introduce children to money as soon as they can count. Repetition will help children learn the values of currency, and children can begin by counting the number of coins deposited into a piggy bank.
* Talk about money in day-to-day activities. Use examples to show children how money is a factor in daily life. When making purchases at the store, talk about how much each item costs. If school supplies are needed, explain the expenses associated with buying these items.
* Use concrete examples. When beginning early lessons on money, it is easier for children to grasp concepts in a visual sense. Pay at stores with cash and change to show how money that was once in a wallet is now depleted. If an allowance is given to children, pay in monetary denominations that are easy to count, such as dollar bills, allowing kids to save a few dollars and spend a few at the same time.
* Be open about the family's finances. While you don't have to share all of the minute details, encourage children to ask questions about bill-paying and how you earn a salary. Kids may know their parents go to work but may not equate that action with earning money to pay for housing and necessities. Show a checkbook ledger or a budget spreadsheet to illustrate the flow of assets.
* Explain the differences between needs and wants. A child who has seen the latest toy commercial may go to her parents saying she "needs" to have that item. Make a lesson out of identifying what is needed to live comfortably and the things that are luxuries. This also may be a valuable lesson for adults as they see which luxury items (such as a new car or big-screen TV) are not really a necessity.
* Set personal goals together. Goals can be tied to saving money. For example, a child may want to save money to pay for a particular video game. An adult may want to devote more to charity. Goals can teach valuable lessons about money management.
* Take kids to the grocery store. Research indicates about one-third of a person's take-home pay is spent on grocery and household items. Therefore, the grocery store can be the ideal place for kids to learn financial lessons. Some stores now have self-scanner guns that enable you to keep track of what you're spending as you shop. Let kids use the scanner so that they can see how purchases add up.
* Give children the opportunity to earn their own money. Children can learn lessons about money more easily when it's a hands-on experience. For those who are too young for a job, chores around the house can be done to earn an allowance. Set rules about how much money can be spent versus saved. Having their own money to spend may help kids take more pride in themselves and give them a sense of independence.
* Be honest about your own mistakes. Learning often involves making mistakes along the way. Share personal experiences with children about how you may have tripped up with regard to money so they will understand that no one is perfect.
* As children get older, introduce more complex topics. Topics such as interest, using credit and investing money can be introduced slowly as a child gets older. At this point you also can mention what is going on in national and local economies.