November 2, 2022
Financial literacy is one of the most important skills to develop on the road to financial independence. The earlier kids are taught about the importance of budgeting, the better they will be set up for the future.
The younger you start teaching your children about finances, the better. Financial habits are already being formed by the early age of six or seven! A good place to start this conversation is by explaining what saving is, and the important difference between wants and needs. While at the store, consider explaining to your child how transactions work. Things like piggy banks are also great for teaching kids about money as it allows them to visualize saving and spending.
A weekly or monthly allowance is a great way to help your kids learn the fundamentals of budgeting, as well as the importance of taking ownership of responsibilities through chores. When you pay your child for the work they have done, explain to them that it’s good practice to save enough to last them until the next time they are paid. It is important not to give your child money if they run out so that they can learn from their financial mistakes.
Goal setting can be a great way to show your children the benefits of saving. Helping your child set a realistic goal with a reasonable deadline gives them a tangible item to work for with a timeline to guide them. An example goal could be saving $100 for a new gaming console over the course of three months. Just make sure to help adjust goals as needed!
As your child gets older, begin to explain to them investment opportunities and compound interest. Next time you go to the bank, bring your child with you! Explain to them the interest benefits of depositing money to their savings account. You can even encourage more saving by offering to match their savings deposits. This will help kickstart your child’s savings while also teaching them investment and interest strategies for the future.
Make sure you are heeding your own advice as you teach your kids about budgeting. First and foremost, children learn from their parents’ example. If you are telling your kids to save money and then spend your own paycheck irresponsibly, they will notice that behavior.