Financial literacy entails having the skills needed to budget, track expenses, save and invest money responsibly. With these abilities under their belts, children can balance needs against wants while avoiding high-interest debts.
Young children can begin learning about financial concepts early by earning money for doing chores appropriate to their ages. This builds the link between effort and reward while creating positive associations between saving, spending and sharing.
1. Understand the Value of Money
Children can develop an early understanding of money’s value from an early age, providing a key step in building healthy financial habits for life.
At age seven, children begin to understand that not all money has equal value and need to earn it themselves rather than expecting free gifts from adults. Now is an ideal opportunity to teach children that money needs to be earned rather than given away for free!
Games such as piggy banks and coin jars help children understand the value of saving their money, as do online resources which offer fun ways for kids to learn about savings, investing, charitable giving games and other topics related to money management.
2. Learn the Value of Savings
Children need to learn that savings are more valuable than impulsive purchases. Establishing financial goals – for toys or bikes or college funds – is an effective way of teaching children the value of delayed gratification.
Teaching kids that taxes must be paid on any money earned is essential to their understanding of budgeting and maintaining accurate records of income and expenditure.
As important, teaching children the difference between needs and wants and encouraging them to compare prices before making purchases is. Doing so helps establish healthy money relationships throughout their lives – the best way to reinforce this message is providing opportunities for real life experience practice.
3. Learn the Value of Investing
As children mature, it’s essential for them to gain knowledge about investing and how to make sound financial decisions, including saving, avoiding debt and building their credit score.
Parents must educate their children how to create a budget by categorizing money as “save,” “spend,” and “give”. Furthermore, encouraging children to open bank accounts helps deposit savings more securely while tracking them over time.
Further, children must understand the value of paying taxes on their income and understanding how interest, loans, repayments and credit work. While parents may wish to shield their children from making financial mistakes altogether, allowing some minor missteps provides invaluable opportunities to strengthen critical thinking and future decision-making skills.
4. Learn the Value of Taxes
Children need to understand that taxes support government services. This concept can be taught through various activities, such as saving, investing and making purchases. Children can also experience first-hand how important tax payments can be through helping with household expenses like utility bills and professional service fees for lawn care or cleaning.
Engaging kids in practical money lessons teaches them the fundamentals of creating and adhering to a budget. Saving can begin early through piggy banks or transparent jars for pocket money savings, earning extra income with chores or part-time jobs or opening an online investment platform account for their earnings.
5. Learn the Value of Credit
Early money lessons provide children with a solid understanding of how work and money go hand in hand, which will ultimately help them avoid problem debt and save for their future goals such as retirement, house purchases and college tuition costs.
Remind them of the three fundamental financial decisions by encouraging them to divide their pocket money, gifts and allowances into “spend,” “share” and “save” categories. You could even encourage them to use a transparent jar or piggy bank as a savings goal for personal aspirations goals. They will learn about investing, which can help build wealth over time through long-term growth; also, taxes have an effect on earnings that they must understand as they get older.