It’s not the money that matters. It’s how you use it that determines its true value.
Do you want your children to become financially responsible? If so, then you need to teach them some crucial lessons about money. If kids can participate in Masterchef USA and win the show, then they have the potential to become junior money masters too. But for that, you need to start with simple money lessons at a young age.
Planning is important before shopping
Children learn by your example. Therefore, include them in your plan before you shop. Creating a shopping list and budgeting with your children sets a positive example. Explain what you’re buying and why so your children can understand how you’re planning to purchase the necessary ingredients for dinner or supplies for cleaning the house.
Next, compare prices online and clip coupons. This will help your children see the value of comparison shopping. If an item on your list is available in bulk, explain the advantages of purchasing that way and even calculate the net savings. This way your kids will learn how to plan their purchases before shopping.
Money is not made in ATMs
Money doesn’t grow on trees, nor can you print it at home (at least not legally that is). Many young children think that you can easily get money from an ATM and that’s where it comes from. That’s not the case and money is a finite resource. Try to clear this misconception early on. Explain to your children that you need to work to earn money. Banks just hold onto your money for safekeeping. Also, try teaching your children the value of earning money through completing chores or other types of work around the house.
Track what you’re spending
The key to effective money management is keeping track of the money you spend. Help your children understand that the foundation of becoming a money master starts with knowing how much you spend and where your money goes. It’s important for kids to understand where their money is going. One idea is to give your children a notebook and have them write down their expenses and savings.
You pay interest when you borrow money
Understanding the concept of debt and borrowing can be simple. As adults, we understand that credit cards, mortgages, and loans bear interest. One way to teach your children this concept is by borrowing money from them. For example, borrow $2. Tell them that you want to borrow the money for a week and that when you return it to them you will pay interest so they will receive back more than what you borrowed.
A week later give the $3 back and explain how the interest grew over the past week, and that this made it so you had to pay them back more than what you borrowed. Learning the relationship between time, money and borrowing can be powerful, especially at a young age.
Making friends with Uncle Sam
Taxes can be confusing for anyone, but it’s important to teach your kids how the tax system operates. You can show them how sales tax works by showing them receipts or letting them purchase items with an allowance. They will quickly realize that the number on the price tag is not always the amount that they pay at the cash register.
It’s also important for kids to understand income taxes. While they may not need to sit down with you while you file your annual income taxes, you may want to charge them taxes on their chores to help them understand what income taxes are and how they work. One example is if they have a goal of earning $100 in chores money, they are required to put $0.10 of every dollar into a ‘tax jar’. You can issue a ‘tax refund’ once they reach their goal. This can be an easy visual representation of how income tax works.
Sharing is caring
Children are often inclined to want to help others. Therefore, you may want to teach your children that they can donate a part of their allowance or other money they earn to charity. They need to understand that donating to charity is a choice and that the money they donate can help those in need. Money can be used to do more than just “buy” things. It doesn’t matter if you can only give a small amount, every little bit helps.
Teaching your children these important money lessons will make them little money masters in no time. The more you encourage conversations about finances, the more comfortable your children will become when it comes to handling their own money matters.