When it comes to teaching children about the value of finances and saving money, the earlier you can do so, the better. It's important to start them out as young as possible, since it instills in them good money skills, building a foundation of financial responsibility that can last into adulthood and a lifetime of smart decisions.
However, 74 percent of parents are seemingly reluctant to talk to their kids about money matters, according to Forbes. Yet there are some perfect opportunities to do so, like during the upcoming holidays: Take Our Daughters and Sons to Work Day (April 28) and Teach a Child to Save Day (April 29). Both are chances to spend some extra time with your kids and, in the process, show them the value of money and saving.
If you're unsure how to go about talking to your son or daughter about how to save money and finances in general, don't worry; there are lots of simple, fun ways to teach your children to be financially responsible at any age. Here are the easiest ways to teach money lessons to your kids.
1. Talk to Them About Finances
One of the first things you can do to teach your children about money is to talk with them about it. Even as young as ages 3 and 4, you can begin to teach your children the difference between needs and wants. "Kids can start the process of understanding money at an early age," said Gary Swim of Swim Retirement. "Even toddlers will understand that you get money by working and you need money to buy things."
"Try having these conversations with your children early and often. It will make it easier for everyone and help them develop an understanding of finances at a young age," said Brad Sherman, a financial planner with Sherman Wealth Management. Don't hesitate to involve kids, especially when they get a bit older, when you're sitting down to pay bills online or work on the monthly budget. This will give them exposure to the hands-on way you manage the family finances.
2. Give Them an Allowance
LaToya Scott of Life and a Budget gives her 6-year-old daughter an allowance not tied to any chores. "We simply give her money so that she will learn how to manage it properly," Scott said. "She can earn additional money from random jobs around the house to accelerate her savings."
When your kids get old enough, though, they can start earning an allowance for chores or small jobs, like cleaning around the house, babysitting, mowing lawns and more. Create a progress sheet or a goals board to hang on their bedroom wall that tracks how much they've earned according to the work they've completed. This will help children learn the value of earning money themselves for something they want to buy.
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3. Match Their Earnings
Your young one might be years, or even decades, away from tapping into a 401k of their own, but it's not too early to start them on the concept of contributions and matching dollars when they begin saving money.
"Encourage them to save by matching their savings dollars," said Jeff Jones, a certified financial planner. "If they need to save $100, offer to match them dollar-for-dollar up to $50. Be sure to put a cap on how much savings you are willing to match. If they prove to be exceptional savers, you might find yourself hustling to keep up."
A simple alternative to dollar matching is the tip method. Similar to how you'd tip at a restaurant, give them some extra money for a job well done on their chores. For example, if their chore was to clean the bathroom for $5, you could give them $2 extra, adding up to $7, if they did an exceptional job.
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4. Use the Three Piggy Bank Method
Most kids have a piggy bank on their dresser or nightstand to fill with coins, but as we all know, one savings account isn't usually enough as we grow up and our financial needs vary.
Lori Craig, market director for PNC Bank Wealth Management, recommended setting kids up with three piggy banks: one for saving, one for sharing and one for spending. "A spending bank is for money to be used on everyday things," Craig said. "A saving bank is for money to be used in the future, or on a big-ticket item. And a sharing bank is to be used to help others or to give."
If you have younger kids, you can help them decorate their banks with stickers, photos or cutouts from magazines that show them visually how the money inside will be used, said Craig. For instance, if the "savings bank" is meant to hold money for a new bicycle, it should have a picture of a bike on it. Using these visuals is a tactile way to remind your children of their goals and what they need to do to work towards them.
5. Play Money Games
Monopoly is such a popular board game, yet it seems to get overlooked as a good financial teaching tool. "[It's] great for teaching kids that they need to save the money that they earn because they might need it down the road for something they need or want," said Matthew Coan of Casavvy.com. "It also teaches them how a smart, possibly expensive, investment can pay off in the long run if done correctly."
Other money-minded games to play with your kids are Payday and LIFE. Both games can teach kids about budgeting and making money decisions. There are also many mobile and online games available to choose from. But to make learning more tangible with younger children, use play money and a toy cash register to introduce money concepts into their lives. Something as simple as coin and bill counting is a simple way to learn how money is quantified.
6. Use Real Life Experiences
Nothing beats real life experience if you want to teach a child about money. Teach by example; make everyday shopping excursions a learning tool. "A trip to the grocery store is a great time to talk about price comparison, value and inflation," said Swim. "The next time you swing by the ATM, make it a point to tell your kids that money doesn't just come from a machine."
Oraynab Jwayyed, a money management consultant, recommended talking to your kids about what you're buying and why as you bring them along shopping. Discuss with them what it means to have a budget and shop within it, and even have them help you hand cash to the cashier and receive the change. You can also ask your younger children to guess the amount the change will be before it's received.
7. Make It a Math Lesson
There's a time and place to teach your kids about money skills — and while they're doing their math homework is the perfect opportunity.
"When my daughter was learning about percentages, I used that study time to also talk about money," said Dianne Crampton, founder of the TIGERS Success Series. Crampton asked her daughter if she would like free money for depositing $10 into an account. She explained to her that 6 percent on $10 in a year gives her more money than the original $10. This helped Crampton introduce the concept of investing to her daughter in simplified terms.
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8. Establish Financial Independence
Even at an early age, it's good to help your kids become more financially independent. If you teach them to save their money for something they truly want, instead of just blowing it little by little on candy or cheap toys, they'll learn the value of a dollar and the items they purchase with those dollars.
Giving pre-teens and teenagers the freedom to do what they want with their money allows them to learn from their mistakes and repeat good financial behaviors, said CPA Ellen Rogin, while also avoiding bad ones. Even setting them up with their own checking and savings accounts at this age, or sooner, can help them learn financial responsibility.
"[It's] trial and error with their own money," said Rogin. "Let teens pay some of their expenses: their cell bill, gas, meals out with friends, movies [and more]. Let them make mistakes while stakes are low."
9. Use Money Apps
Consider engaging your children in some money skill smartphone apps geared specifically to kids. There are many educational games that can help your kids learn how to count, save, set goals and even invest. Apps like Savings Spree, which teaches kids to build a nest egg via a virtual piggy bank, and Green$treets, a game where kids manage money to save endangered animals are both fun and educational. Plus, most of these types of apps are appropriate for younger children all the way up to pre-teens.
Use these steps and tools as you like, according to your child's age and interests. And as they get older, these lessons will translate to teaching them about credit and lending. If you teach your kids how to save now, they'll be responsible and independent — and prepared for their financial future.
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