Financial literacy is an important lesson for children to learn as early as possible. If your child understands the importance of budgeting, saving, giving and eventually investing money, they will be set up for a lifetime of success.
Your child may not be able to earn their own money by working just yet, but to begin getting them comfortable with managing their own money, it may be a good idea to give them an allowance. The allowance money can be in exchange for chores they do around the house, or just a set amount of money that they receive regularly and can manage on their own.
If you choose to require chores in exchange for an allowance, make sure to explain what they have to do (like care for a pet, pick up their toys, etc.), how often they will be paid, and how much money they will receive. This exercise will help them start to learn the value of a dollar.
Once your child begins earning money, you can begin talking with them about the following money management topics:
Spending money on wants vs. needs
Having a conversation with your child about necessary items like food, clothing, shelter, etc. and items that are unnecessary, but nice to have items like toys and vacations. Explain how money should be divided between wants and needs, but there are times when needs have to be put before wants.
Discuss a savings goal
Maybe they have been asking for a new skateboard, or the latest toy. Help them understand how much the item costs and how much money they will need to save to be able to afford the item. Then, talk about how long it will take for them to earn enough money to afford the item.
Teach them to shop around
Help them learn to compare prices at different retailers and discuss discounts and coupons. Explain how to research different features on a product and to determine if those features are worth the extra cost. Learning to put in a little research can save them a lot in the long run.
Show them how money grows over time
If they have a piggy bank, they’ll be able to see their money grow. Once they’re old enough, they can open a savings account and manage their money through Online or Mobile Banking. Seeing progress with their money may help encourage them to save more.
Talk about saving
Share the importance of saving and encourage them not to spend all of their money at once. Ideally, they would consistently save a certain percentage of all of their income, including gifts. Discuss how saved money can be put toward a long-term goal, like purchasing a car when they get their license, or paying for college.
Offer saving incentives
To further encourage your child to save money, you can offer a savings incentive, like matching. For example, if they commit to putting $20 a month into their savings account, you can match the amount dollar for dollar, and then they would have $40 per month. Or you could offer to give them a “bonus” when they reach certain milestones. For example, if they’re aiming to save $300, you could offer to give them $50 when they reach the halfway point.
Talk about giving back
Discuss the importance of giving money to those in need. Maybe your child would be interested in donating a portion of their money to a cause that matters to them, like an animal shelter or other local charity.
Let them make mistakes
This part may be challenging to watch as a protective parent, but it’s important for kids to learn from their errors early on when the stakes are low, so they can avoid making bigger money mistakes later in life. For example, if they express remorse after spending all of their money on one item, discuss how in the future, it would be better to use the money in multiple ways like buying two cheaper items, saving, giving, etc.
Talk about money
Share your personal money information like your salary, your debit, your savings, how much you give, etc. Discuss your money habits and goals, like saving for their college education and your retirement. Explain how you manage money every day by making certain purchases, shopping around, etc. Be transparent and allow your child to ask questions. Over time, they will be able to learn a lot from you.
Starting to discuss money early can be very beneficial to your child. The more they understand about earning, spending, giving and saving money, the better prepared they will be to manage their money once they’re old enough to begin working and living on their own.