According to The T.Rowe Price 2016 survey, talking about financial matters with children at least once a week is the first step to help them develop financial awareness.
1. Paying children an allowance
One of the best ways to establish a financial foundation for your child is to give them the opportunity to manage money when they are young. Paying children an allowance teaches them the value of work.
“New toys, money for outings with friends, and even a new bike – children have to work, save, and budget their own expenses. This helps them understand the value of money and learn to spend it carefully when they leave the safety net of their parents,” said Bill Engel, a financial planner for Fort Pitt Capital Group.
Furthermore, don’t worry too much about children spending money thoughtlessly in the beginning. Even spending money on valueless items will teach them a lesson about their own decisions.
2. Encouraging children to save
51% of children surveyed by The T.Rowe Price said they would spend money as soon as they receive it from their parents. However, to teach children to plan their spending, parents should suggest and encourage them to save money for bigger goals, such as buying more valuable items instead of smaller ones.
One way to encourage children to save is to offer them interest if they save. One parent said she gave her child a choice between receiving money right away to buy things they like or saving for a certain period of time and receiving additional interest from that savings.
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3. Opening an investment account for children
About 14% of parents surveyed even opened investment accounts for their children and taught them about stocks, as well as encouraged them to invest.
“The earlier children are exposed to the financial system, the less fearful they become when they encounter it later,” Engel said.
4. Encouraging children to find a suitable job
A part-time job can help children visualize earning money and managing their income in the future. Jobs help them understand responsibility, time management, discipline, and the value of work. Engel’s daughter got a part-time job at the age of 16 and soon realized that she didn’t have much money left after deducting taxes, so she understood that she had to work for some hours to have enough money to buy herself an expensive cup of coffee.
Moreover, these part-time jobs can help children discover their interests, strengths, weaknesses, and have a better direction for their future careers.
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5. Help children open a bank account
Only 24% of parents in the survey said they had opened bank accounts for their children. However, this is very helpful in giving children the opportunity to practice managing and using bank accounts under the guidance and supervision of their parents.
Engel said he didn’t have a bank account until college. And as a result, he was very confused when it came to writing checks, transferring money, or even using an ATM to check his account balance. In contrast, his daughter started using a bank account at the age of 16 and became proficient in mobile applications to manage her finances.
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Frequently asked questions
It is important to teach children about personal financial management from an early age as it sets the foundation for their future financial well-being. Children who are financially literate are more likely to make responsible financial decisions, avoid debt, and achieve their financial goals. By teaching them early, we can empower them with the knowledge and skills to manage their money effectively and make informed choices.
There are several effective ways to introduce and educate children about money and financial management. Firstly, start with age-appropriate conversations about money and involve them in family financial discussions. This helps normalize the topic and makes them more comfortable asking questions. Secondly, use everyday situations as teachable moments, such as grocery shopping or paying bills, to explain financial concepts. You can also encourage them to earn their own money through chores or part-time work, which teaches them the value of money and the importance of earning it. Additionally, open a savings account for them and involve them in the process to teach them about banking and the benefits of saving. Lastly, consider using financial literacy games and apps designed for children to make learning fun and engaging.
Encouraging your child to save money can be done through a few simple strategies. Firstly, set a good example by demonstrating your own savings habits and explaining your actions. This way, they can learn from your behavior. Secondly, help them set short-term and long-term savings goals, such as saving for a desired toy or a future college fund. This gives them a sense of purpose and motivation to save. You can also create a visual aid, like a savings jar or chart, to help them track their progress and stay motivated. Additionally, consider offering incentives or rewards for reaching savings milestones, but ensure the focus remains on the intrinsic value of saving.
Teaching your child about budgeting can be done through a few practical steps. Start by explaining the concept of budgeting and how it helps manage money effectively. Then, involve them in creating a simple budget plan for their own expenses, such as allowance or earnings from chores. Help them list their sources of income and expenses, and allocate their money accordingly. Encourage them to prioritize needs over wants and to spend wisely. You can also use real-life examples or simulations to demonstrate the impact of different spending choices. Additionally, teach them about the difference between needs and wants, and how to make thoughtful purchasing decisions.
There are several resources and tools available to help teach your child about financial management. Firstly, there are a variety of books and workbooks designed for different age groups that cover financial topics in a fun and engaging way. You can also utilize online resources, such as financial literacy websites and interactive games, which offer a more interactive learning experience. Mobile applications specifically designed for teaching financial concepts to children are also available and can be a convenient tool. Additionally, consider involving your child in community or school programs that focus on financial education, as these can provide a more social and collaborative learning environment.
