There are not many things I complain about when it comes to my upbringing, but a few years ago I did finally admit to my father that I wish he would have taught me more about how to manage money. When I moved out of my parents' house I had to learn everything on my own. It took me hitting rock bottom to finally figure out how to live on a budget and that money is not infinite.
I lived 18 years thinking money came from a bottomless pit I called "Mom and Dad," or what my mom called "The Love Fund." Back then, I thought having $20 to my name was a good thing. Even now I sometimes struggle to budget expenses and monitor spending, even though I know what the consequences are if I don't.
There are certain steps a parent can take to instill good spending habits and money management skills in their children so that they are better prepared to manage their overall financial health as an adult.
Here are 7 ways you can teach your kids about money:
- Start Early
Even when they're little, kids pick up on a lot more than we often give them credit for, and they are paying attention to how you spend money. It's important to frequently engage your kids, from a young age, in conversations about money -- what it is and how it functions within our economy. Hands-on activities are also a great idea because kids digest material best when they're actively participating. (Check out our e-book, Toddlers to Teens: Raising Financially Responsible Kids, to find activities and resources for teaching kids about money at any age. These are simple, fun activities that you can start doing with your children now.)
Money in the real world can be complex to a child, so as a parent, it's important to set the example for how and why you should manage your money. Let your kids watch how you follow your budget rather than just talking to them about it. They can watch you write out checks, make purchases, balance your budget sheet (if you have one), and choose what purchases to make, particularly when it comes to deciding between luxuries and necessities. Show them that you get a paycheck because you work hard every day and that failing to go to work will result in job loss and no more paychecks.
If you haven't already, let your children begin to make purchases with their own money. Allowing them to pull money out of their savings jar, take it to the store, and give it to the cashier in exchange for what they want will help them to better understand the value of a dollar. They'll get first-hand experience and understand that money is required in exchange for what they want. Make sure they recognize that they now have less money than they had before going to the store and ask them if they felt their purchase was worth it. There's no harm in letting children feel buyer's remorse -- these experiences will help them with future buying experiences.
Some parents give their children a weekly allowance for nothing in exchange, but it doesn't teach them that money has to be earned. Create a list of chores for each child to complete each week. If they complete all of their chores, they can have their full allowance. If they only complete some of their chores, then they only earn some of their allowance. If they fail to complete any chores, they shouldn't receive an allowance for the week. This demonstrates that money isn't free and must be earned. This will also begin to instill good time management and work ethic.
Every once in a while life throws a curve ball and leaves you with a hefty expense that's not in the budget. Stress the importance of saving money for times like these, for the future, and for an extra cushion for those unexpected expenses. It's important to teach your children that saving money should be included in their monthly budget.
When your kids are young, use clear savings jars (rather than porcelain piggy banks) for their savings so they can see their savings grow each week. Don't be shy about celebrating little steps made towards their savings goal, either. That will encourage your child to save more.
As children grow into teenagers and get their first jobs, it isn't a bad idea to get them started with a simple checking account. This will allow them to understand the value of their own money -- and that once they spend it, they have to earn more! With their own checking account, they can also learn how to use a debit card. However, you should continually stress the importance of managing the checking account and debit card responsibly. Be sure they understand that the bank will charge fees for improperly managing finances, such as overdrawing their account and bouncing checks.
Signing up for a prepaid debit card is one alternative to opening a checking account. It gives your teen the freedom to use their money as they choose, while also protecting them from overdraft fees or high interest rates. Unfortunately, prepaid cards often come with a lot of fees, but are also more secure than cash and will prevent your teen from overspending. Both methods will let your child see account details online and begin recognizing debits vs credits.
If you have older children who are entering college or even looking for their first job, it's important that you help them understand the importance of managing their credit. The difference between good credit and bad credit can mean hundreds in savings each year. Low credit scores result in higher interest rates and security deposit requirements. It isn't wise to discourage your children from using credit because that can hurt them when they need a loan. If they have no established credit history, they aren't likely to be approved. Instead, teach them the importance of managing their credit responsibly while warning them of the potential debt they could get into if they aren't careful. (Share our guide, Introducing the Credit Card, to give them a crash-course in how credit cards work, and follow that up with our Guide to The First Time Credit Card Owner.)
Though introducing your child to money at a young age is key, it's really never too late to start. Begin the conversation today so that your children may have a brighter financial future tomorrow and are better prepared for the real world as adults.
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This blog post is part of the 'FinEd for Parents' blog series, curated by the editors of HuffPost Financial Education to provide parents with expert advice and tips for managing family finances and raising money-savvy kids. To see all the other posts in the series, click here.