*collaborative guest post
Parents need to understand the importance of teaching their children the value of money. Kids don’t learn the basic stuff, such as paying the bills or the meaning of interest rates in school or from their friends. Financial literacy starts at home so that your children will be better equipped in handling their money in the future.
You should teach your kid that money doesn’t grow on trees. You should share with them real financial situations in a way that they can understand. Discuss your household budget and its importance with them. These talks can prepare them when they move out of the house and start living independently.
Listed here are some of the things children should know about money matters.
The Importance of Saving
You should teach the concept of saving to your child when he or she is around three to six years old. They should understand that they should not spend money right away; this allows them the ability to buy what they want in the future.
Waiting to purchase something you want immediately is difficult—even for adults. That’s why it is important to help children develop the ability to delay gratification at a young age. Your kids should understand that they should save up so they will be able to afford the things they want.
Your kids will thank you later for teaching them how to save. They will appreciate and treasure the item more when they save up for it.
You can use the 20-10-70 rule to teach them about saving, sharing, and spending. Saving 20 percent will teach them to pay for themselves. Giving 10 percent to charity introduces the concept of sharing. Lastly, spending 70 percent forces them to spend less than what they have.
The Value of Money
It is important for kids to learn about the concept of money while they are young. Money is a vital aspect of life, and even young children should know its role. As a parent, you should teach your child that money is a useful tool in providing your family with its needs and wants. You should also introduce the different forms of money to them, such as paper bills, coins, credit and debit cards, and checks.
Make sure your child knows the different values of paper bills and coins. You can have them sort out different types of bills and coins and count them in front of you. You can also introduce the value of money by playing Monopoly and other similar games.
Kids are like sponges. That’s why you should be a good example when it comes to money. You should have a positive relationship with money so that your kids will feel similarly.
Working for Money
You should teach kids that they earn money by working. Doing so will help them understand the concept of rendering services in exchange for money. You can make them do different chores at home for an allowance. You, or they, can then put their allowance in a jar so that they can see how it grows over time.
The concept of working for money should be instilled in kids at an early age so that they understand the value of work and they are less likely to feel entitled to “free” money. It gives them a foundation for a strong work ethic in the future.
How to Spend Money
Your children must know that money is limited, and they need to make smart choices when buying things. They should learn that money spent will not come back to them. One way to teach your children how to spend money is by including them in your financial decisions. You can explain to them about discounts and sales, such as buying items in bulk to save money.
You can also give your kids money and let them make choices about spending it. That way, they learn how to make decisions based on the amount they have. In addition, while shopping, talk to them about your choices.
When to Say No
Peer pressure is strong when your children attend school. They usually will ask for toys, clothes, and other items because their friends have it. You can avoid begging that is influenced by peer pressure by telling your children that you can’t buy everything they want. They must choose things that mean the most to them.
The next time you take your kids to a toy store, let them choose just one item each. Parents should put their foot down and learn how to say no to their children. That way, kids learn that they need money to purchase stuff, and they can’t buy everything they want.
Definition of Needs and Wants
Another concept children should know is the difference between wants and needs. Kids will become more financially responsible when they can differentiate between the two. To help them know the difference, you should provide them with practical examples.
For instance, clothes are needs, but branded items only represent want. Food is a basic need, but an ice cream sundae is a want. You can also present them with a shopping budget and allow them to buy things on their own. That is one way to train them so they will learn how to make financial decisions on their own.
How Debt Works
Student loans, credit cards, and other debts can wreck your budget, especially if you don’t pay them off as soon as you can. You should teach your child the basics of debt and interest rates when they reach their teens. An online loan calculator is an excellent way to show why it is not good to pay only the minimum amount on a loan.
You can use items that your teens can relate to, such as the cost of a smartphone. Input the amount in the loan calculator and show the additional amount when repaying just the minimum each month. Kids will quickly understand the importance of a rapid paying off of a $10,000 loan without credit check .
Another important lesson they should learn is to know what they expect to earn before they apply for a loan. Knowing their earning potential can help prevent over-borrowing. If they are thinking of getting a student loan, they should consider how much they will earn the first year of their employment. Any college debt should not exceed that amount.
Teaching your kids about money is a continuous process. The important thing is that you help them develop sound money management skills that can assist them to achieve financial success in the future.