What are the 7 most important money lessons to teach your kids?
Last Friday my 5-year-old kid asked me to buy a toy Optimus Prime truck. I answered him “I don’t have any money right now, so how about buying it later this weekend”. My son smiled at me and said “Never mind, get the money from the bank and buy it.” I was really surprised and also perplexed.
I truly realized that this is the best time when my kid needs to learn about money and where it comes from. It is my duty to teach my kids a few smart financial habits.
Parents also want to teach such lessons to their kids. But, they do not know how to start and from where. Here, I’ll inform you about the most important money lessons for your kids, and how you can help your kids to learn them.
Teaching money lessons to kids is not an easy job to do. You have to teach them with patience and logical explanation so that they can remember and adapt to what they are being told. Now, let’s check out the lessons you should convey to your kids.
1. Money sources are limited
When kids watch the money coming out of the ATM machine, they don’t have the idea that money is a limited resource. They think whenever you go to an ATM machine, you’ll get as much money as you can desire. You have to work on this idea and explain to them that people have to work hard to make money. The ATM machine or bank can only give you the money that you keep in the bank account.
So, you can’t have as much as you want; you can only get the money that is yours.
2. Budgeting is the key to success
Teach your kids about budgeting. The best way to do so is to give them some money and ask them to use it for their needs. If they use all of the money to buy superhero figures and don’t separate enough money to spend on other things, you can point out the mistake they have made. Do not give them more money instantly.
Ask your kids to do some work for you, and give them extra money as a reward. Tell them to divide the given money into several categories, and then spend them to buy different things. This way they’ll learn to budget and you can easily teach kids how to manage their money.
3. Be patient while spending
Spending money is easy, but doing it wisely is quite tough. So, ask your kids to have patience when they have money. They should learn to have patience. They should wait for the right time when investing that money can get them a good return, as much as possible.
They should learn to control impulse buying habits. If they have money for shopping, ask them to create a budget before hitting the store. They should make a wish list about what to buy, where to buy, and when to buy. Sit down together with your kids and help them to make the wish list. Then help them rank the list by discussing what they really need right now. Set a price range for each item and compare prices between sellers online and in stores.
Teach them the importance of using coupons, and help them to develop bargaining skills. This way they’ll learn to plan before buying things and gradually save a lot from their fund.
4. Keep tracking your money
One of the most important money lessons for your kids is keeping track of their money. They should know where the money is going and how often you are spending in a month. As a parent, you surely have a clear idea about how much you spend each month for your kids (except food, clothing, and transportation cost), right? So, what you can do is to give that money to your kids and ask them to keep it.
Now, whenever you need money for your kids, ask them to give you that amount hand-to-hand, and tell them to maintain a track with dates. They can use a computer or notebook to maintain track of their money. At the end of the month, ask them to prepare a statement of their monthly expenses. You must also ask them to calculate the amount they have left in their fund.
This way, gradually, they’ll learn to track their money. Within several months, this will become a habit and they’ll track each and every dollar they have to spend.
5. Investing is cool
Teach your kids about investing options that could give them a good return on interest, such as savings bonds and certificates of deposit. Compound interest is an amazing thing; so you should inform your kids about it as soon as possible. Find an online compound interest calculator and show them how it can be helpful to prepare for a bright financial future.
6. Sharing or giving is important
Once your kids start earning a little money on their own (return on their investment), don’t forget to teach them about sharing. Earning money is important, but using some of it for a good cause is definitely a greater duty. Ask your kids to select a church, a charitable institution, or a person who desperately needs financial help. If your kids can willingly donate a portion of their allowances to some charity, make sure you encourage them to do so.
Teach them about the importance of helping people, rather than just buying things. They must remember while giving money to the needful, every single penny counts.
7. Too much borrowing is bad
As soon as your kids turn 18, they might get chased by different credit offers. Personal loan offers, credit card offers, payday loan offers, and offers on student loans will be easily available to them when they enter college. So, you should teach them to avoid these offers and avoid debts as much as possible.
This is one of the most important money lessons for your kids. If you still haven’t informed them about the harmful effects of debt, do it immediately. Especially, ask them to keep away from credit cards as much as possible. Using too many credit cards can make them fall into debt. If they overspend too much and can’t pay off their due balances within due dates, they’ll become yet another credit card debt victim.
As a result, their credit score may also get a big hit and they can’t recover from it easily.
As with so many things, what you do matters. Your kids may learn both good and bad things by following in your footsteps. So, it’s your duty to do only good things in front of them.
Follow some simple financial principles at home. Never lie about big money investments to your spouse. Always preach to your kids that money is not a thing that makes people happy. There are far more valuable things in your life like spending time with family, helping the poor, buying only things that you need – these are something that can make you happy.