Kids learn about money from their parents and guardians, so it’s important to be thoughtful about what you teach your kids about saving, investing, and spending. Here are 10 creative ways to develop your kids’ financial literacy as they grow.
Your kids will learn the most about money by watching the way you use it. So improving your own understanding of how to make informed financial decisions also helps your kids. Think about how you approach spending, saving, and investing in your own life. Do you feel confident about your current habits, or is money a frequent source of stress for you? Consider how to approach your finances in a way that not only sets a good example for your kids, but also helps you maintain as positive a financial outlook as possible.
Generally speaking, it’s best to talk to kids about money in a positive light. Even if you can’t afford something, try not to say that directly to the kids. Instead of approaching expenditures from a scarcity mindset, flip the script and talk about opportunities. Ask your kids how they think it might be possible to save up for an item they want. Explore potential opportunities to get the item at a lower price, including watching for sales, researching prices online, and considering used or previously-owned options. You can also talk about changing habits, like eating at home rather than eating out, to save money for the item they want.
Explain how you use money and what you’re doing to pay for things. When you go to the store, explain that the card you’re using accesses the money you have in the bank, or gives you credit that you later have to pay back with interest. If you pay with cash, show them the bills and coins you use. Explain how each coin adds up to the next (5 pennies equals a nickel, etc.), and then to bills (4 quarters equals a dollar). Make it relevant to your kids by giving them a piggy bank or jar to save their own money, watch it grow, and eventually spend it.
Make learning about money fun! You can play popular classic games, like Monopoly and Life, to help kids learn about spending and saving, or look for newer or digital games to keep the learning going. You can even make up your own games, including imagination games like playing store and bank, which can be particularly effective for younger kids. You can practice counting and percentages using money, too.
Practicing saving money is a vital skill, so start this one early. Make it enticing by helping children set savings goals. When your kids receive money for birthdays or other holidays, introduce the idea of a budget. One of the most popular budget models is the 50/30/20 budget rule. In this model, 50% of incoming money goes toward needs, 30% goes toward wants, and 20% goes toward savings. Since children’s needs are typically taken care of by the adults in their lives, you may choose to change this model for kids. For example, you could instead use 50% for savings, 30% for wants, and 20% for investments or donations.
The more opportunities you give your kids to use money, see how money works in the real world, or even just interact with money in some new way, the deeper their financial literacy becomes. When they’ve saved up enough money to buy something they want, take them out to buy it themselves with their own cash. Show them how sales tax works (if applicable where you live), or whether shipping fees apply. You can also go on field trips to places like a bank, credit union, or U.S. Mint or Federal Reserve to learn more.
Whether you choose to give your kids an allowance or provide money as needed with the expectation that kids help around the house, offering opportunities to earn money helps kids connect earning with effort. Try having each child keep a chart or record of their spending and savings. They can easily see if they’re overspending or staying on track for their savings goals. You may even entice them to save more by offering a matching contribution once they reach a certain savings milestone.
Many parents encourage their kids to save some of their money for donation. This shows kids that as a community, we’re responsible for taking care of each other. Offer your kids a variety of choices for where to donate their money, and let them choose the one that speaks to them. Choices could include:
Teach your kids that investments are a great way to make your money grow. If you’ve started a college fund through a special federal or state savings plan, show your kids how that money grows over time. You could also opt to work with an older child to choose a stock, bond, or CD to invest in (or just follow!) and check the market each morning to show them how funds fluctuate with the market.
You don’t want your child learning about the pitfalls of credit cards the first time they get one and overspend. Teach your kids about the necessity and importance of establishing credit for future needs. But even more importantly, teach them how critical it is to charge responsibly by never putting more on a credit card than you can afford, and paying off the balance each month.
Most importantly, find creative ways to get your kids involved! Teaching kids about financial literacy from an early age helps them learn how to spend, save, invest, and use credit responsibly.
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